Tips for Consolidating and Paying Off Debt
Debt can sometimes feel like a prison, holding you captive from reaching your financial goals. The truth is, debt is normal for millions of Americans, but that doesn’t mean it should go ignored. Debt consolidation may be a good option for you to regain control over your current balances. Consolidating your debt involves combining multiple debts into a single payment with a more favorable interest rate and more affordable monthly payments. We’re here to help with tips on how you can consolidate and pay off your debt.
Assess the Amount of Debt You Owe
The first step in deciding how you want to pay off your debt is knowing exactly how much debt you owe. Having a clear understanding of the numbers will empower you to make a repayment plan that actually works. This step can be as simple as compiling a spreadsheet or taking advantage of budgeting apps that will compile the information for you. After you determine the amount you owe, it’s important to list out the due dates for each payment, the minimum monthly payment amount, and the interest rate. Once you have all of this this information, you can move forward with choosing the best method for consolidating and paying off your debt.
Credit Counseling
We all know that debt collectors can be persistent when it comes to contacting you about your growing balances. Looking into a credit counselor could alleviate some of those pestering calls and assist with your debt consolidation. Credit counseling services negotiate with creditors on your behalf to get you more affordable terms, including lower interest rates and monthly payments. You then make one monthly payment to the counseling service which would then distribute the funds to your creditors. Credit counselors can also be a helpful source to guide you to develop a budget and learn to manage your money better, and the great news is your credit scores do not factor into your qualification for the service.
Debt Consolidation Loan
Some people find that taking out a large personal loan to pay off smaller balances makes paying down their debt a lot easier. Personal loans typically have fixed interest rates based on your credit score and the size of the loan. Debt consolidation loans can make it easier for you to keep track of your monthly payment by combining your balances into one lump sum – one payment, to one source, once a month. You will have less worry about missing a due date or only making minimum payments on other balances.
Credit Card Balance Transfer
Maybe you are stuck with several high interest bearing credit cards and are having trouble deciding which ones to pay off first. With a balance transfer, you move your debt from a high-interest credit card to one with a lower interest rate. Some financial institutions will run promotional periods where they offer little to no balance transfer fees or a promotional period interest rate that appeals to your needs. Do your research and try to find the best offers to fit your needs and help you pay down your debt.
Home Equity Loan
A home equity loan is a loan borrowed against the equity in your home. These loans are among the lowest interest and longest repayment schedule loans, making the monthly payments significantly lower and more affordable than other methods of debt consolidation. The funds from your home equity loan is another great way to take multiple payments and combine them into one payment to one lender. These loans are dependent on your credit score, how much equity is available in your home, and you debt-to-income ratio, so if any of these factors are not where you need them to be, it could negatively impact your chances of securing a loan large enough to cover all of your balances. You can read more about improving your credit score to help secure the best loan for your needs.
No matter what your situation, the best tip for making a good debt consolidation decision is that you fully understand your financial situation. Getting out of debt is a journey and the most important decision you can make is to start the process of paying it off. Once you’ve started the process, don’t forget to celebrate along the way. After all, with every payment you make, you’re one step closer to freedom from your debt.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.