Do debts need to be consolidated? Check out these credit options

Debt consolidation loan application form with pen, calculator
Is Debt Consolidation an Option to Pursue?

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Paying off debt can be a challenge, especially when you’re juggling multiple debts at once.

Fortunately, consolidating your debt can make the process easier. With debt consolidationessentially consolidating all of your balances into a single loan, streamlining your payments and ideally reducing your overall interest costs as well.

Are you struggling with multiple debts? Find out if you qualify for free debt relief advice with this simple online tool. The entire process takes less than a minute.

If you want to learn more about your debt relief options in general, here is a breakdown.

What is Debt Consolidation?

Debt consolidation is when you combine all of your debt into a single loan.

For example, you take out a loan or line of credit large enough to cover all of your debts. Once approved, use these funds to pay off your credit cards, loans, and other debts in full. All you have is the new loan and a single monthly payment.

Debt consolidation loans can be a good option when dealing with credit card debt as they often come with lower interest rates. Credit cards typically have double-digit APRs, so consolidating them with a loan or other product can potentially save you both monthly and over the long term.

Online resources can be a good place to start when discussing what type of debt relief option is best for your situation. See which option can help you save the most money.

Debt Consolidation Loan Options

There are several ways to consolidate your debt. Some are reserved for homeowners or mortgage holders only, while others can be used by any consumer.

Here are some of your options:

  • A personal loan: Personal loans can be an option for debt consolidation as you can use the funds for any purpose. However, they may come with higher interest rates than other consolidation options. The average interest rate on personal loans is about 9%, according to the Federal Reserve Bank of St. Louis.

  • A balance transfer credit card: Credit Transfer Cards are credit cards that typically have an APR of 0% for between six and 21 months. You transfer your entire balance to the card (this usually carries a 3% to 5% fee) and then withdraw the balance before this zero interest period expires. According to credit bureau Experian, you typically need a minimum credit score of 670 or higher to qualify for one of these loans.

If you’re not sure about your credit score, you’re not alone. Luckily, there are some easy ways to find out your credit score using FICO’s online tools.

  • A Home Equity Loan or HELOC: If you own a home, you can use a home equity loan or line of credit (HELOC) to consolidate your debt. These are both second mortgages that allow you to fund your home equity. Home equity loans come with an upfront payment, while HELOCs work more like credit cards that you can withdraw from when needed.

  • A payout refinance: This is another option for homeowners. To consolidate debt with one payout refinance mortgage, take out a new loan large enough to cover your current balance plus your other debts. Remember: there are upfront costs associated with refinancing. Mortgage Purchase Freddie Mac estimates these average around $5,000, although you may be able to put it into your loan balance and pay it back over time.

The eligibility requirements for each of these options depend on the lender or credit card company you use. However, you can expect your credit rating to play a role (and the higher your score, the better interest rates you qualify for).

“In general, you need good credit to qualify for a debt consolidation loan with favorable terms,” ​​says Leslie Tayne, a debt relief attorney in New York. “You may be able to qualify for a high-interest, low-credit personal loan, but taking out this loan may not improve your financial situation.”

Should You Consolidate Your Debt?

It can be a good idea to consolidate your debt if you’re having trouble keeping track of your payments, or you can reduce the overall interest you have to pay over the long term.

Remember that taking out a loan or line of credit involves risk. Mortgage and home equity products allow you to lend money to your home. This could put your property at risk of foreclosure if you fail to make payments. Failing to make payments on a loan or credit card also hurts your credit score, so make sure you only borrow what you need.

You may also want to work on your spending habits to avoid going back into debt.

As Tayne puts it, “Consolidating your debt won’t fix potentially problematic spending habits. If you tend to spend more than you take in, chances are you’re running up a significant amount of credit card debt again – possibly before your consolidation loan is paid off.”

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