For many Americans, debt is a way of life. From credit cards and school loans to mortgages, medical bills and other personal loans, debt has a way of piling up. If you’re feeling stressed out and overwhelmed by your debts, debt consolidation is a way to make repayment more manageable.

Debt consolidation is a debt relief process that combines multiple debts into a single monthly payment, allowing you to make one payment a month rather than multiple.

All debt is not created equal.

It might seem like all debt is the same, and while all debt needs to be paid back, only one type of debt is normally consolidated. Debt is divided into two categories: secured debt and unsecured debt.

Secured Debt

Secured debt is debt that is backed by an asset or collateral. Types of collateral include a property (a home or piece of land) or a vehicle. Should a borrower default on the loan, the loan issuer can seize the collateral in order to guarantee the loan. A mortgage loan or a car loan are both considered a secured debt.

Unsecured Debt

Unsecured debt is debt that cannot be backed by an asset such as credit card debt. Credit card company will extend a line of credit to a person or business, but there is no collateral against the line of credit for the credit card company to collect should the borrower default. Along with credit card debt, medical bills, utility bills, and other personal loans or lines of credit are considered unsecured debt.

Why should I consolidate my debts? To pay less interest.

If you have multiple unsecured debts, consolidating provides some good benefits. It can reduce the interest rate applied to a debt, so a borrower can pay back what they owe with a lower total cost over the course of repayment. Interest often doubles the total amount you pay back in the end, so anytime you can cut down your total interest do it!

Combining multiple debts into one generally results in one interest rate for the debt as a whole, rather than multiple interest rates for many different loans. And if your credit has improved since you originally secured the loans you might even be able to get a lower rate.

In most cases, consolidating unsecured debts can also lower the overall monthly payment of the loans, which makes paying back the loan easier to manage, especially for those on a limited budget.

Is debt consolidation right for me?

The most important aspect of debt consolidation is making sure your debts don’t add up again. When you choose debt consolidation, there needs to be a commitment to getting out from under water, not gaining more unnecessary debt.

Consider debt consolidation if:

• Your credit score is high enough to qualify for a low interest credit card or loan
• Your cash flow will consistently cover payments on the debt
• You are able to plan a way to avoid incurring more debt

Debt consolidation is a good option if your total unsecured debt is manageable and you know you’ll be able to keep up with the one monthly payment. If your debt is small or more than half of your income, there are other options available to you. Here at Valley Credit Union we can help inform you about all different types of debt consolidation and repayment.

Valley Credit Union can help you with consolidating debt

At Valley Credit Union, we work with our members to understand their debt and talk about the options available to them when considering debt consolidation in Oregon. If you’d like to know more, contact us. You can use our debt consolidation calculator to see how much money you could save each month by consolidating your debts. Contact us today!

About the Author

 Katie Clark, Director of Administrative Services

Katie Clark has been at Valley Credit Union since 2011. She serves as the Board Secretary and oversees Human Resources, Marketing and Facilities for the credit union, some even call her the credit union mom. As a CUNA and GoWest HR council member she stays connected with the latest industry happenings. When she’s not in the office she enjoys weekends with family & drinking wine at the Oregon coast.