Consolidating Your Loans

12/14/2022

3 minute read

Types of debt consolidation and when to consider it

For many of us, debt consolidation can help ease financial stress by providing a manageable way to handle multiple debts. It doesn’t erase your debt, but it can help lower monthly payments by having a lower interest rate and simplify how many monthly payments you make. Here we discuss the ways to consolidate your debt and when it is a good idea to do so.

There are two primary ways to consolidate your debt:

Get a low interest balance-transfer credit card. Transfer all your high-interest debts onto this card and pay the balance in full during the promotional period.
Get a low fixed-rate loan. Use the money from the loan to pay off your debt, then pay back the loan in installments over a set term. Your credit score will be a major qualifying factor in approval and interest rate.

Two additional ways to consolidate debt are taking out a home equity loan or 401(k) loan. However, these two options involve risk to your home or your retirement. For more information about the pros and cons of the options we’ve discussed, read “Debt Consolidation” from earlier this year. The best option for you depends on your credit score and profile as well as your debt-to-income ratio.

When is debt consolidation a good idea?

Your credit score is high enough to qualify for a low-interest rate.
Your cash flow can consistently cover payments toward your debts.
You can pay it off within the terms of the agreement or promotional dates.

Keep in mind consolidation doesn’t address spending habits. It may be necessary to meet with a financial counselor to get a better understanding of how the debt grew in the first place and what financial habits you can change or implement to help avoid unmanageable debt in the future.

For those of us who feel trapped by debt, consolidation can feel like the light at the end of the tunnel. At Credit Human we’re committed to helping our members build financial slack and stress less. Find more information about Credit Human’s credit cards and personal loans available to help consolidate your debt or visit your neighborhood Financial Health Center for personalized guidance on all your financial needs.

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