Most people hate debt, especially when it seems like they can’t get ahead of it. With the majority of Americans having some kind of debt, debt consolidation has become very popular and useful to those looking to take control of their debts.
Debt consolidation is not debt settlement - with debt consolidation, the debt is paid back. This saves your credit. When it comes to consolidation options, do-it-yourself consolidation options are easy to adopt, manageable, and readily available to thousands of Americans.
Choose the Right Debt Consolidation Option For You
There are many different debt consolidation options available, and it can be difficult to choose which one is best for you and your debt. Below are the most common options available. If you have questions, we are happy to provide additional information.
Credit Card Balance Transfer
One popular debt consolidation option for credit card debt is a credit card balance transfer. This option includes applying for a balance transfer credit card, then transferring all credit card debt to the new card.
To do this, you want to ensure your credit is in good standing prior to applying for the new card. You want to find a card with a long introductory period and an APR that is lower for as many months as possible. Once the card is approved, you move your current balances to the card. Be aware that there may be a balance transfer fee attached to the card, which can run up to 3% of the balance transferred to the card.
Once all the balances are transferred the repayment begins. It’s important that you determine how much needs to be paid each month to pay off the debt within the introductory period (you want to avoid having a balance once the card’s interest rate kicks in).
For this option to be successful you need to make a payment each month and not add to your debt.
Personal Debt Consolidation Loan
For those with more than just credit card debt, another debt consolidation option is a personal debt consolidation loan. This is a good option for those with multiple debts: credit cards, store and gas cards, medical bills, payday loans and personal loans, private student loans and unpaid tax debt. It’s important to note that mortgages, auto loans and federal school loans are not included in this consolidation option.
The first step is applying for a loan through a lender, making sure to shop around for the best rate - you want to find a loan with an interest rate lower than what you’re currently paying. The loan is used to pay off the debts, and then payments are made on the loan over time.
To be an effective debt repayment option, a debt consolidation loan should take 5 years or less to pay off. If it takes longer than 5 years to pay off, it usually costs more in overall interest and defeats the purpose of consolidating the debt.
Debt Management Program
When debt becomes too much to manage on your own, a debt management program (DMP) is a good option to consolidate and pay off multiple debts.
A DMP is done through a credit counseling agency. Valley has partnered with BALANCE. The agency sets up a payment schedule for you to repay your debts. Through a voluntary agreement, you have a set amount deposited with the agency each month and those funds are sent directly to creditors. This option helps you repay your debt and guarantees creditors receive the money owed to them.
A DMP is helpful in that you can direct any phone calls from debt collectors to the agency. You may also receive a reduction or waiver for finance charges, but this is not guaranteed.
If you choose a debt management program, you will not be able to use the lines of credit once available to you. Creditors will close or suspend your lines of credit. It is common for some creditors to reestablish your credit after successful use of a DMP. But, for those with a lot of debt that may become unmanageable, a DMP can be a very helpful and successful consolidation option.
Valley Credit Union Can Help With Debt Consolidation
When it comes to consolidating your debt, it can be hard to discern which option is the best one for you. Valley Credit Union can help, providing assistance and answering questions about debt consolidation in Salem Oregon. Contact us today for more information and to talk with one of our experienced Member Service Counselors.