If you are struggling with debt, consolidation may be the right choice for you.
What is Debt Consolidation?
Debt consolidation is a way of combining multiple types of debt incurred by a person, into one monthly payment. Using this method, you can aim to pay off your debt in a matter of just a few years. The common length of time is three to five years. Remember, you still can’t miss a payment after consolidating.
Consolidating your debt will lower interest rates so you can save money on interest and reduce monthly payments. It helps pay down debt faster. You use money from your loan to pay off the debt, then you pay back the loan in easier payments.
The Following Debts can be Consolidated
- payday loans
- unsecured loans
- credit cards
- high-interest loans
- collection accounts
Benefits of Consolidating Debts
- Only one payment: consolidation combines multiple debt payments into one monthly payment. Easy to remember, and easier to pay.
- Pay off your debts quickly: your debt will be paid off within three to five years.
- Low-interest rates: Low-interest rate will save you money by allowing you to make bigger payments.
When Is It a Good to Consolidate Debt?
- When you have a plan set up to guide you and prevent you from falling into debt again.
- Your cash flow is consistent and allows you to cover the loan payments.
- Your credit score is good enough to get a low-interest debt consolidation loan.
- Your total debt, not including the mortgage, does not exceed 40% of your gross income.
Should I Consolidate my Debt?
If you are in any of the following situations, consolidating debt may be a good idea.
- Bad spending habits: If you are spending more money than you are making
- Credit card troubles: The balance of your credit card is growing and not shrinking, as well as you having more than five credit cards with debt. Also, consider consolidation if you are close to, or at the end of, your credit card limits.
- High-interest rate: The interest rate of your credit cards are in excess of 18.99%
- Getting turned down: If you have been turned down for an in-store loan, or turned down for a credit card, due to a high ratio of debt to income.
- Minimum payments are doing it: If you are only making minimum payments and it isn’t paying down the debt.
What Can I Do?
List all the debts you need to have consolidated, and next to each debt, write the total amount you owe. Also, write what the monthly payment is, and its due date. Record the interest rate you are paying on each debt. Doing this will help you find the total amount you need to ask for when getting a consolidation loan. If you need to, get help to develop a monthly spending plan, and stick to it.