The conventional method for consolidating debt is to get a loan from a bank, credit union or online lender. The loan should be large enough to eliminate all the unsecured debt at one time. The loan is repaid in monthly installments at an interest rate you negotiate with the lender. The repayment period is normally 3-5 years, but how much you interest you are charged is the key element.
Lenders look closely at your credit score when determining the interest rate they charge for a debt consolidation loan. If you are falling behind paying off your credit card debt, it’s very likely your credit score is tumbling, too. If the interest rate you get for a debt consolidation loan is not lower than the average interest rate you already were paying on your credit cards, then a debt consolidation loan does you no good.
There are alternative loan possibilities such as home equity loans or personal loans, but neither helps if you can’t improve the interest rate you’re paying or the repayment period is so long it doesn’t make sense.
Debt Consolidation without a Loan
It is possible to consolidate your debt and reduce your monthly payments without taking out another loan. Credit counseling agencies offer nonprofit debt consolidation through a debt management program, which doesn’t require the consumer to take out a loan. Instead, the nonprofit credit counseling agencies work with card companies to reduce the interest rate and lower the monthly payment to an affordable level for the consumer.
The consumer sends a monthly payment to the credit counseling agency, which then distributes the money to each creditor in an agreed upon amount. The agency may also get the card companies to waive late fees or over-the-limit fees.
This is not a quick solution. Debt management programs usually take 3-5 years to eliminate debt. If you miss a payment, they can revoke whatever concessions were made on your interest rate and monthly payment.
Should I Consolidate My Debt?
If you are tired of seeing your credit card balance rise every month, and the balance has reached levels that are starting to overwhelm you, and you are weary of the anxiety this is bringing into your life every month, and you just need a plan you can follow, then yes, credit card debt consolidation is something you should strongly consider. In other words, if you’re ready to turn your financial life around, debt consolidation can help do it.
Nearly everyone losing the battle with debt has this conversation with themselves every month. You want to be responsible with your money and you want to step away from credit card dependence, you just need a plan.
Debt consolidation is a plan. It simplifies bill paying. It gives you a reachable goal to meet every month and eventually lets you breathe again financially. You will have to do some research and comparison, but the essence of debt consolidation can be summed up like this:
One affordable payment, once a month, to one source
If you can put that on your plate, yes, debt consolidation will work for you.