Your Guide to Debt Consolidation
t’s not uncommon for people to find themselves burdened with multiple debts such as credit card bills, student loans or medical expenses. The weight of multiple debts can be overwhelming. Debt consolidation allows you to roll multiple debts into a single monthly payment. Here are some valuable insights and practical steps to get you debt-free sooner.
How Debt Consolidation Can Help
Debt consolidation combines multiple debts into a single loan or repayment plan. Combining your debt into one monthly payment simplifies your debt and makes it easier to manage. Debt consolidation could save you money because it may reduce the overall interest rate you pay as well.Assess Your Financial Situation
Evaluate your debts including outstanding balances, interest rates and monthly payments. This will provide you with a clear picture of your financial standing and help determine the most suitable consolidation method for your needs.Use our 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 Options
There are several 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.
Under $10,000 in Debt
Typically, for smaller amounts of debt under $10,000 a personal loan or credit card balance transfer with a promo rate could be best.
A personal loan can be helpful if the interest rate is lower than the rate on the debt you're consolidating. With a personal loan, you can pay off your other debts, leaving you with just one, simple monthly payment. A personal loan will give you a fixed interest rate, so your rate won't change over time. And it will give you the potential to set a new term length that works for you.
A credit card balance transfer (also known as credit card refinancing) consolidates all your debt on a new credit card, and a lot of cards will offer a 0% APR introductory period when completing 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 the introductory period is over, so you should only consider this approach if paying off your debt is manageable during the introductory period.
Over $10,000 in Debt
Typically, for larger amounts of debt over $10,000 looking at equity in your vehicle or home could be a better option for lower interest rates.
A Home Equity Loan allows you to tap into your home’s equity to consolidate your debt if you own a home. With CommunityAmerica’s 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. This type of loan is secured by your home, which introduces risk if you can't keep up with your payments.
Your Vehicle’s Equity is an option for debt consolidation. If you’re able to refinance your auto loan at a lower interest rate and you owe less than what the vehicle is worth, then you could use the equity to pay down higher interest debt. This method is like using your home equity, just using your vehicle instead. If vehicle values are high, it could be a good time to take advantage and pay down high interest debt.
Consolidating debt can be a beneficial strategy to free yourself from debt faster, while potentially saving money along the way. 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’re here to help. Book a free appointment with a Financial Well-Being Coach to make a plan to pay down your debt.
All loans subject to approval.
