If you’re feeling overwhelmed by debt, you’re not alone. The majority of Americans have some kind of debt, and average monthly credit card balances are continuing to increase. On top of that, high interest rates and the rising cost of living can make it hard to get back in control of your finances.
You might be wondering if debt consolidation is right for you. Keep reading to learn about debt consolidation and how to decide if it’s your best option.
How Does Debt Consolidation Work?
Debt consolidation is a debt relief option that allows you to combine multiple debts into a single monthly payment. This makes repaying your debt more manageable by allowing you to make just one monthly payment instead of juggling several. In most cases, people who consolidate debt pay less interest, which means lower monthly payments overall.
When you consolidate your debt, you typically have one interest rate for the whole debt, instead of different rates for each loan. In some cases (if your credit has improved since you originally took out the loans, for example) you might be able to get a lower interest rate.
When to Consolidate Debt
You should consider debt consolidation if…
You Have a Lot of Unsecured Debt
Debt consolidation can be a great option for people with a lot of unsecured debt. Unsecured debt is debt that cannot be backed by an asset like a car or a home. Secured debt, like home loans and auto loans, do not usually get consolidated. Unsecured debt includes:
- Credit card debt
- Medical bills
- Utility bills
- Other personal loans or lines of credit
You Have the Cash Flow to Cover Monthly Payments
When you’re deciding if debt consolidation is right for you, the most important factor is your ability to actually pay off the debt. You don’t want to consolidate just to have your debts start adding up again. If your unsecured debt is potentially manageable and you’re committed to getting it under control, debt consolidation can be a great option. Try using our debt consolidation calculator to see what your monthly payments would be.
You Think You May Qualify for a Low Interest Credit Card or Loan
Consolidating debt usually involves either transferring your balances to a single credit card or taking out a loan. In either case, your goal will be to choose an option with a lower interest rate than you’re currently paying. To do this, you’ll want to make sure your credit is as good as possible before you apply.
Choose the Right Debt Consolidation Option
There are several debt consolidation options available to you. These are the most common ones:
A credit card balance transfer is often a great choice for people with credit card debt. It involves transferring all your debt to a new card and making payments towards it each month.
A personal debt consolidation loan can work well for people with multiple types of debt (such as credit cards, medical bills, student loans, unpaid taxes, and more). This way, you use the loan to pay off your debts, and then you make monthly payments on the loan.
A debt management program (DMP) is often the best solution when you have many debts that are too much to manage on your own. You deposit a set amount each month with a credit counseling agency, and the agency sends those funds to creditors. (At Valley Credit Union we partner with an agency called BALANCE.)
You can read more about each of these debt consolidation options in this post.
Let Valley Credit Union Help You Consolidate Your Debt
Dealing with debt is always stressful and complicated. If you have very little debt or debt that’s more than half your income, debt consolidation may not be right for you, but there are other options for getting back on track.
Whatever your situation, Valley Credit Union can help. We’ll help you understand your debt situation, answer all your questions, and talk about your options so you can get your debt under control and look forward to a more financially secure future. Contact us today.