Your Guide to Debt Consolidation

Last Updated on April 22, 2021

MyFinancialTimes is a reader-centric site. We may receive compensation from the products and services we mention or recommend in this story, but the opinions are the author's own. Remuneration may impact where offers appear. We may not include all available products or offerings. To learn more you can visit our advertising policy and editorial policy.

If the thought to combine all your debt into one payment ever crossed your mind, then you are not alone. And yes, it is very much possible. This is the process of debt consolidation, which can be very helpful for those facing dire financial woes and overwhelming debts. In this article, we will explain everything about debt consolidation and how you can go about it.

Debt Consolidation – What is it all about?

Debt consolidation is the procedure of panning multiple debts into a single monthly payment. Generally, several kinds of debt consolidation programs are available with the common goal of reducing interest rates and offering low monthly payment options. This way, you can pay off your debts sooner in three to five years.

How Can Debt Consolidation Be Helpful?

There are some advantages of debt consolidation, and the major ones are:

1. One Payment Every Month

It can be exhausting to keep up with different payments in a month, each with their different due dates and late payment charges. Consolidating them simplifies things and you only have to make one payment.

2. Low Interest Rate

The ever-piling up interest can be frustrating because you never know when it will go up. A low interest rate from consolidating helps you make substantial payments.

3. Quicker Pay Off

Debt can drag on as you try to keep up with payments, but consolidated debt will allow you to pay off debt quicker.

Ways of Consolidating Debt

There are different ways you can approach this matter. First, opt for a debt consolidation strategy. You can consolidate debt both with or without taking a loan. It is easy to find consolidation loans from lenders and banks.

Debt Consolidation Without Taking a Loan

If you want to take the no loan route and do not want to begin a new credit, then opt for a credit counseling session from a nonprofit agency. The credit counselor will evaluate your budget and analyze your debt. If they believe your income is sufficient to cover your expenses and you can make monthly payments, then you can enroll in a debt management program.

Such nonprofit agencies are in arrangements with credit card companies to substantially reduce interest rates and relax fees via their program. After enrolling, forget the rest. Such programs then automate payments to your credit card company, which pays off your debts within a few years.

Debt Consolidation With a Loan

Create a list of all your debt for consolidation. Then for every debt, note down the total amount you owe, monthly payments due, and the interest rate you paid so far. Begin adding all that amount from each debt and set it in a column. There! Now you have an amount to borrow for a loan to pay off your debt.

You can also add monthly payments you are presently making for every debt and spare a column for that. This offers a good comparison number. Now reach out to an online lender, a bank, or some credit union and request a debt consolidation loan (often called a personal loan) covering your complete amount. Inquire about monthly payments and interest rates. Compare your current monthly payments with what the lender is offering. If it satisfies you, go for it or try another lender.

Final Words

Piling debt can be extremely worrisome and can exhaust you financially and emotionally. Debt consolidation can help you clear up your crushing debt.