People hate debt, especially when it seems like they can’t get ahead of it. The majority of Americans have some kind of debt, and as a result, debt consolidation has become very popular and useful to those looking to take control of their debts.

Debt consolidation is not debt settlement or debt relief – with debt consolidation, the debt is paid back in full which helps protect your credit score. When it comes to consolidation options, do-it-yourself consolidation options are easy to adopt, manageable, and readily available to thousands of Americans.

In this article we’ll cover what debt consolidation is, and everything you should consider if you want to make debt consolidation work for you.

What is Debt Consolidation?

Debt consolidation is a way to simplify your finances by combining multiple debts into one manageable payment, often with a lower interest rate. Unlike debt settlement, which involves negotiating to pay less than you owe, debt consolidation ensures your debts are fully paid off – helping to protect your credit score and avoid penalties from debt collectors.

It’s a solution for those feeling overwhelmed by juggling several payments or dealing with high-interest debt. With debt consolidation, you can take control of your finances and create a clear path toward being debt-free. Whether it’s credit card balances, personal loans, or medical bills, consolidating your debt makes it easier to stay on top of payments and focus on your financial goals.

Benefits of Debt Collection

Debt consolidation offers several advantages to regain control of your finances:

• Simplifies Your Payments: Instead of keeping track of multiple due dates and minimum payments, you’ll only have one monthly payment to worry about.
• Reduces Interest Rates: Many consolidation options, like personal loans or balance transfer credit cards, come with lower interest rates than credit cards, which will save you money in the long run.
• Improves Credit Management: Moving your credit card debt into a single payment option can lower your credit utilization ratio, which may help boost your credit score.
• Cuts Down on Stress: Managing a debt balance can feel overwhelming. Consolidating your payments helps reduce the stress of staying organized and on time.
• Saves You Money: By locking in a lower interest rate or focusing on paying off debt faster, you can cut down on the total amount of interest paid over time.

Is debt consolidation right for you?

Debt consolidation can be a great way to take charge of your finances, but it’s not the right choice for everyone. Here are some questions to ask yourself to determine when debt consolidation makes sense:

Are you managing multiple debts with high interest rates?

If you’re juggling a student loan, credit card debt, medical bills, or a direct loan with interest rates, consolidating into a lower-rate option could help you save money.

Are you struggling to keep up with payments?

Consolidation combines your debts into a single payment, making it easier to stay on top of due dates and avoid late fees.

Do you have good credit?

Options like balance transfer credit cards or personal loans typically require good credit to qualify for the best interest rates. If your credit isn’t perfect, some options, like a secured loan, may still be available, but they could come with higher costs.

Can you commit to paying down debt?

Consolidation only works if you stick to your repayment plan and avoid adding new debt. If you’re ready to make a change, this could be the fresh start you need.

Do you want to save on interest over time?

The right debt consolidation plan can save you money if it allows you to pay off your debt faster or with less interest.

Debt consolidation isn’t for everyone. If your debt is manageable through budgeting or if the fees outweigh the benefits, it may not be the best choice. Still, for many, it’s a step toward financial freedom and peace of mind.

You can use our debt consolidation calculator to help you determine if debt consolidation is right for you. 

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, your credit needs to be in good standing prior to applying for the new card. Then, apply for 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
• Personal loans
• Private student loans
• 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 partners with BALANCE to help with Oregon debt consolidation. The agency works with you to create a payment schedule tailored to repay your debts. Each month, a set amount is deposited with the agency, which then distributes the funds directly to your creditors. This structured approach ensures your debts are repaid consistently while providing creditors with the assurance that they’ll receive the money owed.

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 won’t 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.

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.