Best Ways to Consolidate Debt

Best Ways to Consolidate Debt

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Most people dealing with stubborn debt have at some point wished it was easier to manage and less costly to carry over time. This is especially true for the many Americans holding more than one active credit card account at a time. Given the average American cardholder has four credit cards, it’s easy to see how juggling multiple bills every month could become both complicated and expensive.

There is, in fact, a process designed to simplify the repayment of various debts each month and save borrowers money compared to what they’d pay tackling said debts month over month: consolidation. There are a few different ways to consolidate, depending on your credit score and debt levels — here are some of the best.

Get a Balance Transfer Credit Card

Are the high-interest rates on your credit cards counteracting your efforts to pay down your balances? What if you could get a break from interest for say six months, a year, or even more than a year? That way, every penny you paid during that time would go directly to chipping away at the balance instead of furnishing interest fees.

Getting a balance transfer credit card moves debts to a card with a promotional interest rate of zero-percent or low interest for a period of usually between six and 18 months. You will still be responsible for making at least minimum payments, but the idea here is to pay down as much as possible during that low-interest window.

A few caveats of transferring your balance: Any new charges you put on this credit card typically do not qualify for the low- or no-interest offer, so it’s smart to reserve this card for repayment only. Different cards also carry different fees, promotional timelines and terms, so do your homework before signing up.

Take Out a Debt Consolidation Loan

Another possibility is using a loan to pay off all your various credit card balances en masse. This leaves you with just one monthly payment and, if your credit score qualifies you for it, a lower interest rate. Although loan rates can vary from single-digit to double-digit percentages, qualifying for the rates at the lowest end of the spectrum will require a strong application and strong credit history.

The best debt consolidation programs, banks, credit unions, and online lending companies will clearly outline the interest rate for which you qualify, your monthly payment amount, the length of the loan in question, and any fees or penalties you can expect to encounter along the way.

Participate in a Debt Management Program

Meeting with a credit counselor is a good way to get outside advice from a qualified debt expert. This professional will go over your options with you after looking at your specific financial situation. They may provide you with information about debt management plans (DMP), another form of consolidation.

Under a DMP, you’ll make one payment to the credit counseling agency each month rather than multiple payments to all your creditors; the agency will pass on those funds to creditors — who may agree to cancel fees or lower interest as long as you keep meeting the requirements of the DMP.

The average length of a DMP is three to five years, and there are generally start-up and maintenance fees to pay. You should also be prepared to stop using credit for the duration.

Consolidating debt, when successful, can help you pay off your debt with less interest, within a fixed timeframe and with less hassle. Just be sure to understand your options and their requirements before you commit.

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