Empower Blog

May 12, 2022

Your Guide to Debt Consolidation

When faced with various forms of debt, usually the first thing on anyone's mind is how quickly it can be paid off. Reducing your overall amount of debt is important for improving your financial well-being. One approach that may be helpful in tackling debt is debt consolidation, which enables you to roll multiple debts into a single monthly payment. Read on to learn more about how debt consolidation works and if it could be right for you.

How Debt Consolidation Can Help

One major way debt consolidation could help you improve your financial picture is by saving you money. If you have multiple sources of high-interest debt, such as credit cards, consolidating could get you a lower interest rate. A lower interest rate means you'll reduce your debt faster, lower your monthly payments and save money on interest over the life of the loan. Do the math with our handy debt consolidation calculator to find out if consolidating your debt could help you get out of debt quicker and see how much you might save on interest.

Debt consolidation also makes your debt easier to manage. By combining all of your debt into one singular monthly payment, it's easier to keep track of than several different types of debt that all have different amounts, terms and payment due dates. Simplifying your debt in this way can help you better stay on top of your finances.

Debt Consolidation Options

There are several different options for consolidating your debt. Which one might be right for you will depend on factors such as your credit score, how much debt you have and what interest rates you qualify for. Here's what to know about your options:

  • Credit Card Balance Transfer – Also known as credit card refinancing, you could consolidate all your debt on a new credit card with a 0% APR introductory period by doing a balance transfer. This allows you to pay down debt with no interest during that time. However, the regular interest rate will kick in after that, so you should only consider this approach if paying off your debt is manageable during the introductory period. Our Visa® Signature card offers a special introductory rate and no annual fee.
  • Personal Loan – Another way to consolidate debt is a personal loan. This might seem counterintuitive, but it can be helpful if you can find one with a reasonable interest rate. Using the new loan, you can pay off your other debts, leaving you with just one, simple monthly payment. Advantages of personal loans include a fixed interest rate, so your rate won't change over time, and the potential to set a new term length that works for you.
  • Home Equity Loan – If you're a homeowner, you may be able to tap into your home's equity to consolidate your debt. With our Hybrid Home Equity, you get a master line of credit with a variable rate. When you draw on your line, you can lock in a fixed rate on any portion of the balance for a set, easy-to-manage monthly payment. This gives you the flexibility to tackle your debt however you choose and often offers lower interest rates than other options. However, this type of loan is secured by your home, which introduces risk if you can't keep up with your payments.
  • Use Your Vehicle’s Equity – Finally, you could also use the equity in your vehicle as an option for debt consolidation. If you’re able to refinance your auto loan at a lower interest rate and owe less than what the vehicle is worth, then you could use some of that equity to pay down higher interest debt. This method is similar to using your home equity, just using your vehicle instead. Vehicle values are very high right now, so it could be a good time to take advantage and pay down high interest debt.

Consolidating debt can be a beneficial strategy for helping you free yourself from debt faster, while potentially saving money along the way. But make sure you don't bite off more than you can chew. When deciding whether to consolidate, pay attention to the interest rate being offered, as well as the timeline for pay off. Debt consolidation options are only helpful if they can lower your interest rate and make your debt more manageable.

If you'd like to discuss your debt consolidation options and better understand how it could affect your personal financial situation, we'd be happy to help. Contact us today to learn more.

All loans subject to approval.

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About the Author
caleb brown
Caleb Brown

Financial Relationship Consultant

Caleb specializes in helping members achieve financial peace of mind by listening, educating and consulting to determine the right options to fit their financial needs.