Should I Consolidate My Debt?
Many American families struggle with household debt, including credit card, auto loan, student loan, and home mortgage payments. If you’re among those trying to keep up, consider debt consolidation.
Common Types of Debt Consolidation
What Is Debt Consolidation?
Multiple debts are consolidated into a single payment, often at a lower interest rate than what you’re currently paying. You can save on interest and eliminate debt faster.
But debt consolidation isn’t for everyone. You often need to pass a credit check. And to fully benefit from consolidation, you’ll need to commit to paying off the debt — not adding to it. Here are some common types of debt consolidation options.
Debt Consolidation Loan
Banks and credit unions often offer these loans. The money is used to pay off your existing debts, leaving you with one monthly loan payment at a fixed interest rate. Monthly payments may be less if your new loan term is longer than your original debt terms, but that means you could end up paying more in interest over time. You also may be charged a loan origination fee.
Balance Transfer
If your only debt is credit cards, you could transfer your balances to a single card with a 0% introductory interest rate that often lasts 12 to 21 months. Use that time to pay off the debt before the rate expires. After that, the card company may charge a fee of 3% or 5% of the amount transferred, plus the new interest rate on your charges could increase significantly.
Student Loan Consolidation
You can simplify your education loan payments by consolidating federal student loans into a Direct Consolidation Loan from the government. No credit check is necessary. You can also consolidate federal and private student loans by refinancing them through a private lender. By doing so, though, you’ll forfeit some of the benefits offered on federal loans, such as lenient repayment options and loan forgiveness.
Consider your circumstances to determine if debt consolidation could help you achieve your financial goals.
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