The Complete Guide That Makes the Process of Debt Consolidation Simple

The average American has over $15,000 in debt, not including their mortgage. For most people, these debts are scattered across different types of loans, from credit cards to student loans, and everything in between.

While most debt is considered to be bad for your financial health, the fact that people have so many different account balances to track and pay each month makes things even worse.

With different payments, different due dates, and different lenders, it can be easy to miss payments, which can hurt your credit score. But that’s where debt consolidation comes in handy.

There are many ways that you can actually combine all or most of your existing debt into one loan balance. That means one monthly payment, one interest rate, and one account to manage.

Wondering how to consolidate debt to make your life easier? Keep reading to learn how this powerful strategy can save your personal finances.

Determine What Type of Debt You Have

Before choosing a debt consolidation strategy, you need to know exactly where you stand currently. your first step is to pull out a sheet of paper or open a new spreadsheet on your computer.

Then, list out each different loan you currently have open. Write down the lender, the loan balance, and your monthly payment.

When you see how much of your money each month is going straight to debt payback, it can provide you with the motivation you need to finally get out of debt once and for all.

Now, look at the types of debt you have. Are they all credit cards? Or are there student loans, auto loans, or home equity loans mixed in there as well? The type of debts you have is important to your consolidation strategy.

Note Your Current Interest Rates

You should also write down the interest rates on each one of your loans. These can vary dramatically.

Auto loans and home equity loans can have rates as low as 5% while credit cards often have rates of 15% or higher. This means that some of your debt is much worse for you than others.

Credit cards are the worst offenders and should be the first to go. If you can’t make a plan to pay them back in a short time frame, there are multiple strategies for consolidating these into a lower-interest loan.

Any Late Fees?

Scroll through your transaction history on each one of your loans and credit cards. See if you have paid any late fees. Many times, people don’t even notice that they incur late or missed payment fees. If they do notice, they often don’t care, since it just gets added to the loan balance anyways.

But these late payment penalties are costing you money and making your financial situation worse. On top of that, it could be affecting your credit score. Missed and late payments are some of the most important factors when determining your score.

Until you consolidate, make sure you don’t miss any more payments. But once your loans are all combined, it will be much easier to make your monthly payment on time, every time.

Determine the Best Debt Consolidation Option

Now that you know what your current financial landscape looks like, it’s time to find the best debt consolidation loans or strategies for you. Here are some of the most common.

Balance Transfer Credit Card

One of the first and easiest options to consider is the balance transfer credit card. If all or most of your loan balances come from credit cards, this can be a one-stop-shop for you.

By applying for a new balance transfer credit card, you are essentially opening a new loan account. But instead of using it to make purchases, you transfer all of your other credit card loan balances to this new card.

This in effect pays off your existing credit cards. Now, you’ll only have one open card with a balance.

Some balance transfer cards give you a few months without paying interest. But note, there is typically a fee for transferring balances to a new card. For most people, however, the benefits of consolidation outweigh the cost. Ultimately, it can save you a lot of money and frustration in the long run.

Debt Consolidation Loan

Debt consolidation loans are similar to personal loans but are used exclusively to pay off other debt. This can be credit cards or other types of loan balances such as auto loans, student loans, and so forth.

They are easy to get and often come with lower interest rates than balance transfer credit cards. You can typically choose a term length that works for you.

And the best loans, such as a debt consolidation loan from Plenti, won’t charge you any early repayment fees. So if you are feeling motivated, you can pay it off as fast as you want and start living debt-free.

Home Equity

For those in serious debt, using home equity may be the best approach. Homeowners often have tons and tons of equity in their homes that is passively providing financial security.

In your time of need, however, when you are subject to insane interest rates, home equity can be a lifesaver.

Since a home equity loan or a HELOC is secured by your home, interest rates are much lower, often around 6% or so. By paying off debts that have rates above 10%, you can save thousands over the life of your loan repayment.

Don’t be quick to use equity, however. By doing so, you put your home at risk should you fail to make payments on your home equity loan. Always weigh the risk versus the reward. And consider your ability to make your monthly payments on a consistent basis.

Don’t Wait; Consolidate

Debt consolidation can be a powerful strategy. Not only can it save you a ton of money in the form of lower interest rates, but it can make it much easier to manage your personal finances.

When you feel like you have a grip over your money, you’ll make better decisions for your future. Don’t wait, consolidate today.

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