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 and paying down the principle balance sooner.
- Set a budget. Build a money plan around your bills and expenses.
- Find a lower rate. Consolidate at a lower rate or get a low promotional rate on a credit card balance transfer to save big on interest.
- Improve your credit score. If you make your payments on time and avoid taking on more debt, you could raise your credit score.
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:
- Total debt amount (not counting a mortgage, if you have one) is 40% or less of all your income before any taxes or 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.
Ways to Consolidate 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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