Debt consolidation can be a viable option for people with multiple sources of debt. Doing this allows you to focus your efforts on making one payment each month with one interest rate. Many options are available for people who wish to consolidate their debt, whether you do it yourself through your own research or you work with a professional.
This method of paying off your debt works best for people who are able to pay their bills. If you’re juggling multiple payments with multiple due dates, debt consolidation might make sense for you. However, if you’re struggling to make even the minimum payments for things or you have bad credit, then debt consolidation may not make sense for you.
1. Transfer Debt to a Lower-Rate Credit Card
Some credit cards allow you to transfer balances from other cards and charge 0% interest for doing this for a fixed amount of time. Typically, they’ll ask you to pay a transfer fee of 3-4 percent to do this, but if you think you can pay it off in the fixed amount of time, it may be a good idea to do, according to an article in Consumer Reports. However, if you think it’s going to take you longer than the no-interest introductory period, a credit card with a fixed low rate may be your best bet.
2. Prioritize Payments & Pay More Than the Minimum
It may seem illogical because most people would suggest paying off the one with the highest interest rate first to avoid paying more in interest, but if that balance is near your credit limit, it will take a long time to do. Whereas, if you choose the one with the smallest balance, you’ll feel better psychologically about paying it off sooner, so you can move on to the next one when that one’s paid off.
According to Peoples Credit Inc., consider upping your monthly payment by even just a little bit. Say you have a credit card with a $1500 balance and an APR rate of 18%. If you make just the minimum payment, just $37, it’ll take you 159 months to get that balance down to zero, and you’ll end up paying $1700 in interest. However, if you throw in just an extra $10 to bring that monthly payment to $47 instead, you can pay it off in 44 months with interest charges just over $550. It’ll go down even faster if you pay even more. It’s worth it to raise your payment above the minimum as much as you realistically can, because it’ll pay off faster and you’ll end up paying less interest in the long run.
3. Consider Consulting With a Credit Counselor
A credit counselor works with the companies that you owe your debt to, and you repay these debts with lower interest rates with one payment per month through this counselor.
These agencies can help you get on a debt management plan that you can pay off in a reasonable amount of time – typically 5-7 years to improve your credit and get you back on your feet. They offer professional advice and guidance for addressing your debts with multiple creditors.
While debt consolidation does not change overspending or poor budgeting habits – things that may have gotten you into debt in the first place – it does offer a feasible way for you to get a handle on your debt so you can move forward towards paying it off and enjoying financial freedom.