Debt repayment is especially tricky with multiple debts owed to multiple creditors. If you’re struggling to keep track of debts, pay more than the minimum, or make on-time payments, then consolidating loans might be wise. Here is some information to help decide if it’s a good idea for you.
The Why and How of Consolidating Loans
Consolidating loans, including credit card debt, is a way to simplify the debt management process. It’s a good strategy for people whose debts are beyond their means or are so numerous that keeping track of payments is difficult. It is not a quick fix to solve debt problems.
If you are able to make larger than minimum payments or only have a couple creditors to deal with, then continuing to handle debts separately is still the best option.
Consumers who determine that consolidating loans or credit card debts would help with debt problems have a couple methods to choose from.
Consolidating Loans on Your Own
If your accounts are current and you have a good credit score, then consolidating on your own is an option. There are a couple methods to consider when 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. Consumers with good credit are usually 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 can help by providing consolidation services that leave credit intact.
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.