If you think de-cluttering feels good, wait until you try it with your bills.
Debt consolidation might sound complicated, but the idea is pretty straightforward. Debt consolidation takes all the debts you owe and rolls them into one, more affordable payment. Having fewer bills to manage can make repayment easier. You can save money on interest and even use that money to pay down your debt faster.
Benefits of Debt Consolidation
The interest rate and repayment rules of your new loan will determine which benefits can apply to you.
- Pay fewer bills each month. Combine multiple debts into one balance for fewer bills to juggle.
- Shorten your repayment term. Save money by putting less toward interest rates and paying down the principal balance sooner.
- Set a budget. Build a money plan around your bills and expenses.
- Find a lower rate. Consolidate debt at a lower interest rate or get a low rate on a credit card balance transfer to save big on interest.
- Work on your credit score. Making payments on time and avoiding taking on more debt are two things credit card agencies look at to determine credit scores.
Debt Consolidation Guidelines
Debt consolidation could be a good option when your debt amount is manageable for your income. You can qualify for a plan that will benefit you, and you can budget to avoid more borrowing. Here are some guidelines:
- Your total monthly payments you make towards your debt (but not including a mortgage, if you have one) should be a manageable percentage of your monthly gross income (before taxes or other automatic deductions).
- Credit score is strong enough that you could qualify for a low interest personal loan, 0% balance transfer credit card, home equity loan or home equity line of credit.
- Income is enough that you can make your new monthly payment.
- Budget allows you to pay your expenses without taking on more debt.
You can consolidate your debt by paying it off with a personal loan, low balance transfer credit card, mortgage refinance, home equity loan or home equity line of credit. The best choice depends on your personal situation and goals.
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