Dealing with debt can be a tricky situation—especially when you have multiple balances. Between planning for multiple monthly payments and dealing with interest rates, paying off debt might seem like an overly complicated and overwhelming task. The good news is that there is a simpler way to manage debt.
If you have multiple balances, debt consolidation may be a good idea. Consolidating debt is a strategy that takes multiple debts and merges them into a single monthly payment. Consolidation helps simplify the process of paying off debt and can be extremely beneficial if you’re able to qualify for a lower interest rate.
How does debt consolidation work?
As mentioned above, debt consolidation rolls multiple debts into a singular monthly payment. You can do this with a 0% interest balance transfer card, a debt consolidation loan, a secured loan or a debt management plan.
With debt consolidation, the new interest rate should be lower than the originals. A lower interest rate can hopefully help you save money on interest overtime. This can also help you pay off the debt faster.
Should you consider debt consolidation?
Debt consolidation can be a great idea depending on a situation. Every situation is different, so in order to determine whether or not debt consolidation could benefit you, you’ll need to properly assess your debt and your financial situation.
Here are four requirements for seeing success with a debt consolidation plan:
- Your monthly debt payments don’t exceed more than half of your gross monthly income
- You have good credit and can qualify for a 0% credit card or a low interest loan
- You have consistent cash flow to cover payments
- You’re able to pay off a consolidation loan within five years—at most
If these apply to you, there’s a good chance that you’ll see success with debt consolidation.
Debt Consolidation Benefits
If you qualify for a low interest or zero interest loan or card—there’s a good chance that debt consolidation will be extremely beneficial for you.
Here are a few benefits of debt consolidation:
- Less interest—this can save you money and help you pay off debt faster.
- A more manageable monthly payment—a single monthly payment makes debt easier to manage and keep track of.
- Better credit—if you make payments on time and lower your balances, this will help boost your credit score.
The bottom line is that debt consolidation can be an extremely effective means for paying off debt if done correctly. If you have the willpower to set aside extra money for payments, refrain from adding more unnecessary debt and keep up with monthly payments, debt consolidation could help you save money and stress.
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