In the United States alone, there’s over $900 billion in credit card debt. If you’re looking to get a handle on your debt, you’ve come to the right place.
From using credit cards to loans, we’ll go over everything you need to know about the different debt consolidation methods.
Whether you’re looking to streamline your payments or reduce your interest fees, the benefits of consolidating your debts are almost endless. Debt is costing you a lot of money in interest in fees. It’s also making getting new credit difficult.
It’s time to make a plan for tackling your debt. With even just a little debt reduction, you’ll see more money saved and even a boost in your credit score. We’ll help explain different consolidation methods and see if debt consolidation is right for you.
Choosing Your Debt Consolidation Methods
There are several different ways to consolidate your debt. Some of the most common methods include rolling your credit card balances into one, low, or zero interest card.
Doing a little research and finding the best credit card could help you roll your credit card debt into one easy payment with a zero-interest card.
With the zero-interest credit card method, you’re rolling over all your existing credit card balances. This means taking one or two cards and putting the balances on another card. The two you paid off will then have a zero balance.
Another debt consolidation method is through a loan. With this method, you take out a loan in order to pay your debt. You use the loan funds to pay off the balance on your cards.
With this method, you’re ideally receiving a lower interest on your loan payment.
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In addition to cards and loans you can take out on your own, there are also debt consolidation companies. These companies essentially consolidate certain debt for you, giving you one convenient payment.
There are fees associated with these services. It’s also best to check references and do some research to make sure the company is reputable.
With Debt Consolidation, You’ll Repay Debt Sooner
Consolidating your debt comes with a variety of benefits. The first is often how much faster you’ll be able to pay off your debt. Let’s say you have multiple credit cards with different amounts of debt.
Consolidating your debt could mean less interest or even zero interest for a short time. This could give you the time you need to significantly pay down or reduce your debt.
The more you get down, the less interest you’re paying. When you’re paying less interest, you’ll see your debt number go down that much faster.
Having too much debt will weigh you down. From monthly debt payments to fees and interest charges, you’re paying heavily each month to keep up with your debt. Consolidating could give you an outlet to pay off your debt sooner.
Debt Consolidation Will Make Your Finances Simpler
Having multiple credit cards with several different payments and due dates can feel overwhelming. It’s hard to remember what is due when and what you’re putting on each card.
Consolidating some of this debt onto the right credit card could give you a more streamlined monthly payment.
With debt consolidation, not only are you only making one payment, now you don’t have to worry about multiple bills and due dates. With everything going on in your life, it’s hard enough to keep track of your bills.
A debt consolidation using one credit card could make life a little simpler. During this time, you could also freeze other cards or put them away, so you don’t use them.
Now you only have one card to use in your wallet ensuring you’re only accumulating more debt in one place.
Lower Your Interest Rate with Debt Consolidation
Debt is expensive. The more debt you have over time, you’ll pay more and more interest. If you need to save money each month, interest is a great way to do this. Lowering your interest rate means your monthly payment is lower.
Before you choose a credit card to use for your debt consolidation, shop around for different interest rates. A lower interest rate means more money in your pocket each month. It also means you’re able to pay off your debt sooner.
If you’re paying too much interest, chances are you’re paying more interest than principal. When you have a lower interest rate, you’re able to focus on paying your actual debt.
Less interest means more off your plate each month instead of handing money over to your credit card company.
Having a lower interest rate also means more money each month to pay for other expenses. If you’re currently using your credit card to fund your living expenses, this will catch up with you.
You want to make sure you aren’t overusing your credit card. Less interest means more disposable income to use on living expenses.
You Can Use Debt Consolidation to Create a Better Payment Schedule
If you have several different credit cards and credit card payments, it’s difficult to manage. Between work and family life, you’re likely juggling a lot. With a new consolidated debt payment, you’re able to create a schedule that fits better into your busy life.
Instead of paying multiple credit card payments a month, you can now make one easy payment. You’ll know how much you have to pay and when. Instead of having multiple payments you need to worry about, you’ll have less on your plate.
If you were previously making multiple payments online or over the phone, this is time-consuming. Now, you can set an automatic payment for one payment a month.
No more making ten calls a month, writing paper checks, getting stamps, or overdrawing your checking account because you lost track of payments.
Debt Consolidation Will Lower Your Debt-to-Income Ratio
Your debt-to-income ratio refers to the amount of debt you have compared to your income. The more debt you have the higher this ratio becomes. Keeping your monthly debts lower will give you a lower debt-to-income ratio.
This ratio is used to help determine your creditworthiness. Your ratio will affect everything from your interest rate to your loan terms.
If you’re using a lot of debt compared to your income, this means you are spending too much each month. You’re likely spending more than you’re earning.
A lower debt ratio means you’re using debt responsibly. You’re either paying off your debt each month or it’s staying low compared to your income.
Let’s say you have a high credit card balance compared to what you make each month. When you apply for a home loan, your lender will look at this.
Your lender looks at your debt ratio to determine how responsible you are with credit. Lower debt means you’re less risky of a loan candidate. This will help you get a lower interest rate on everything from cars to home loans.
Debt Consolidation Saves You Money Each Month
When you’re paying expensive interest, you’re essentially throwing away money. The more you spend on interest the less you have in disposable income each month.
This is a vicious cycle when it comes to debt. Every month you likely aren’t even making a dent in your debt totals.
Debt consolidation will save you money. You can roll your higher-intertest debt into one lower interest payment. In some cases, certain credit cards even feature zero interest for a period of time.
If you use a zero-interest credit card for one year, you could save thousands of dollars in interest. Instead of paying interest fees each month, you’ll make actual progress on your debt. Every penny you pay each month directly reduces your debt.
With less money spent on interest, you’ll have more money to pay for groceries, entertainment, and living expenses. No more using your credit card because you have no other option.
With more disposable income, you’ll have more money available to keep you from using your credit cards.
You’ll See Better Loan Terms in the Future After Consolidating
When you go to buy a home or buy a car, your lender is looking at your credit in addition to your debt ratios. If you have too many high-interest credit cards, this will reflect poorly on your credit. A low credit score means a higher interest rate.
In addition, your lender is also looking at your credit utilization ratio. This also weighs heavily on your credit score. Let’s say you have five credit cards total.
If your available credit between them is $20,000 and your bills are totaling $18,000, you have a high credit utilization ratio.
Using this same example, let’s say you now only have one credit card in use. If your other cards all have all of their available credit open, this will slowly increase your credit score. Now, it looks like you’re only using one card while the rest have a zero balance. Every month you make a payment, your debt goes down.
When you apply for a mortgage, an apartment, and even a new job, your credit is being pulled. Too much debt will lead to a lower credit score. This shows lenders and employers that you aren’t using credit or money responsibly.
Tips for Smart Budgeting
In order to pay off your debt, you need a budget strategy. A budget is a great tool for making sure you have enough money to pay off your debt and other financial obligations. Use your budget to help you manage your debt payments.
To start, list all your income and expenses in one place. Your mortgage, rent, and car payment, are examples of fixed expenses.
These are expenses that you have to pay no matter what each month. It’s difficult to cut these expenses without making major life changes.
Your debt payments, music subscriptions, groceries, and gym memberships are all variable expenses. This means they will vary by month. Some of these expenses are also where you can cut if needed.
If you find you don’t have enough to pay your debt each month, it’s time to make some adjustments to your budget.
Once you have your new monthly payment, you can carve out how much you need to pay each month. This can vary widely depending on how much debt you’re accruing.
Make paying your debt a priority. This may mean making cuts elsewhere to make it happen.
Which Debt Consolidation Methods Are Right for You?
When it comes to debt, making a plan to pay it off can save you a ton of money over the long term. There are several debt consolidation methods available to help you pay off your debt and reduce your interest.
Whether you want to roll over your credit card balance or use a loan to pay off multiple cards, the benefits are almost endless. You’ll often save on interest, fees, and more.
The less debt you have, the better your credit, the better your loan terms will be in the future, and the more money you’ll save.
For more debt and finance tips, check out the blog section. You’ll find money resources, ideas, and more.
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