So, you’re mulling consolidating your debt. That’s understandable, since the financial strategy has saved consumers like you, money while simplifying bill paying. But you aren’t exactly sure how the process works. Where’s what to expect from debt consolidation.
What is Debt Consolidation?
It basically means rolling multiple debts, from credit cards or personal loans, say, into a single monthly payment. The idea is to get a lower interest rate that saves you money — and to streamline your payments. Instead of multiple bills of various amounts and due dates to keep track of, you’ll have just one payment to concern yourself with.
Am I a Good Candidate?
You likely are if you’re serious about reining in your spending. Otherwise, those credit card swipes will have you back at square one before you know it.
It’s also best if you have good credit. While you might be able to get a consolidation loan with a banged-up credit score, you likely won’t be able to nab an interest rate low enough to make consolidation worthwhile. You won’t be able to consolidate using a balance transfer card, though, because your scores make you ineligible for one of those deals. More about transfer cards later.
Debt consolidation may also work for you if what you’re pulling in income-wise can cover the debt payment plus your household expenses.
Where’s debt consolidation near me, you ask? We’ve got you covered.
Debt Consolidation Through a Loan
Such loans are offered by banks, credit unions and online lenders. You’ll have to compare interest rates and loan terms to find out the amount of interest and fees you’ll pay overall. Credit unions typically are more flexible, eligibility-wise, but if you have a good relationship with your bank, you should try there as well. The good thing about online lenders is that they do a “soft” credit pull – harmless to your credit rating – to give you an idea of what you might be eligible for.
Such a loan may be a wise way to handle your finances, since you’ll know how much you need to pay monthly and for how long. Prior to going ahead with one, though, be sure you understand the terms and fees, which potentially could raise the overall payback amount.
Debt Consolidation Through a Balance Transfer
Occasionally, credit card companies will issue a 0%-interest card onto which you can shift your high-interest obligations. As we say, you’ll need to have good credit to qualify for one of these puppies. You’ll also need to be able to pay the card off before the promotional period ends – usually in 12 to 18 months – and your rate shoots back up.
Before you go this route, though, be certain you know precisely when and how the new plastic will begin charging you interest. For example, you want to know whether any purchases you make on the new card will fall under the promotional rate.
Debt Consolidation Through a Home Equity Line of Credit (HELOC)
The good news is that an HELOC typically has the lowest interest rates of all the consolidation options. But do you know why rates are so low? It’s because you can lose your crib if you start missing payments. Your house serves as loan collateral, rendering this kind of consolidation the riskiest. Tread very carefully here.
Now you know what to expect from debt consolidation, depending on the method you choose. Go over your situation and see whether the financial strategy is right for you. Just be sure you’ve got your spending under control!
A professional writer with over a decade of incessant writing skills. Her topics of interest and expertise range from health, nutrition and psychology.