When you’re dealing with multiple debts that aren’t going away, you start investigating different options for help. One action that you’ll see suggested by a number of sources and in different contexts is to consolidate debt. This leads many to wonder what debt consolidation is and if it’s a good option for them.
Debt Consolidation Defined
In the most basic sense, consolidating debt is combining multiple outstanding balances into one account and payment. Unfortunately, it’s more complex than it sounds, and there are a couple different ways for the concept to be applied. Some consumers are in a good enough position to consolidate on their own by applying for a new loan or credit. For those with deeper problems, there are companies that provide help with consolidation.
DIY Debt Consolidation
If you have not fallen behind on payments and still have a good credit score, then consolidating on your own is an option. There are a couple methods to consider for merging your debts. Before you proceed with anything, look up the balance amounts and interest rates for all of your debts. This way you will be prepared no matter which avenue you take.
One easy way to consolidate credit card debt is to use balance transfers. Often advertised as promotional offers, you can transfer the outstanding balance of one or more cards to a different card. Most balance transfer offers have 0% interest for somewhere between 18 and 22 months. This works well if you are certain you’ll be able to pay off the debt before the low-interest period ends. Making this kind of financial move can reduce interest charges and decrease the total amount of creditors you’re paying each month by combining a few debts into one account. You can transfer balances to a card you already have or apply for a new one.
A long-term consolidation option is to use a personal loan to pay off multiple debts which then combines them into one monthly payment. This option is only useful if you’ll be able to get a lower interest rate than the combined interest rates for the debts you’re consolidating. If your credit is in good standing, then you’ll be able to get a loan for somewhere between 4% to 11%, which is lower than many credit card interest rates. Just ensure you fully understand the terms before accepting a loan.
Anyone interested in DIY consolidation can use this debt consolidation calculator to determine if it is a good option for them.
Debt Consolidation Services & Assistance
There are many businesses that offer debt help for consumers that have become overwhelmed. Some offer debt relief or settlement services, which can have negative effects on credit scores. Credit counseling agencies or other nonprofit companies with a debt management center will help by providing consolidation services.
A consolidation service is not a loan. Instead, a counselor enrolls clients in a debt management program which offers lower rates and reduced fees from creditors. In a DMP, consumers submit a single combined monthly payment to the agency. That money is then distributed to all the client’s creditors. It simplifies the repayment process by reducing the number of payments a client must keep track of. Thus, debts are consolidated without taking on more debt.
Additionally, credit counselors provide financial education tailored to each client’s specific situation. They help consumers design a budget and track spending to avoid falling further into debt. A heavy debt load is a symptom of a deeper problem. Credit counseling seeks to educate consumers so they can more effectively manage their finances.
If you’re struggling to eliminate debt call American Consumer Credit Counseling today at 800-769-3571.