Being in debt is a scary thing. If you’ve got large amounts of credit card debt, you may worry that you’ll never be able to fix your finances and that you’ll always owe money.
However, this doesn’t have to be the case. Even if you spent years overspending on your credit cards, there are ways you can regain control of your finances and get out of debt.
There are many methods you can use to improve your financial situation. One tool you can use is debt consolidation.
If you’re serious about paying off your credit card bills, debt consolidation might be the best option for you. The following sections explain what debt consolidation is, how to consolidate and whether this is a good option for you.
What is debt consolidation?
Debt consolidation is a strategy you can use to help you get out of debt. If you have high-interest credit card debt, you can combine the balances you owe and put them together at a lower-interest payment.
There are two ways you can consolidate your debt. Your options include:
- Getting a debt consolidation loan. These personal loans are available at a fixed rate. With this option, you can use the loan to pay off your debt. Then, you are responsible for paying off the loan within a reasonable amount of time.
- Transferring your debt to a card with low interest. It might seem counterintuitive, but you can use a transfer credit card to make your outstanding debt more manageable. With one of these cards, you can transfer all of your credit card debt onto a low-interest card. Usually, these credit cards offer promotional periods during which you won’t be responsible for paying interest on your balance.
About the Best Balance-Transfer Credit Cards
Is debt consolidation a good option for me?
For some, debt consolidation is an excellent way to get a handle on credit card debt. To determine if this recovery method is good for you, you’ll want to assess the following aspects of your situation:
- The amount you owe – Debt consolidation is only a good option if you have a manageable amount of debt. You can determine this in relation to how much income you earn. There’s no magic amount you need to be aware of to help you determine if debt consolidation is a good choice for you. However, you want to make sure you owe enough that the consolidation would be worth it and that you don’t owe too much that you won’t be able to pay it off before you start accruing more interest.
- Your plan to get out of debt – Before you consolidate your debt, you need to make sure you have a plan to help you get out of debt. In order to take advantage of debt consolidation efforts, especially if you’re transferring your balance to a new credit card, you need to make sure you could pay off your balance by the end of the card’s promotional period, during which you won’t accrue interest. If it would take you longer to pay off your debt, this method wouldn’t save you much money.
- Your credit score – In order to obtain a credit card with a low annual percentage rate (APR), you must have a good credit score. If you’ve got a sizable amount of debt or are consistently behind on your bills, you might not be able to qualify for one of these cards. However, if you’ve got a good credit score and are able to take advantage of these promotional periods with no interest rates, debt consolidation could be a great option for you.
- Your source of income – If you have a steady job and a reliable stream of income, debt consolidation might be a good way for you to manage your bills. This is because you need to know that you’ll be able to pay off whatever debt you still have as soon as possible. Otherwise, debt consolidation won’t work, and you’ll still owe money.
Should everyone consolidate their debt?
Debt consolidation isn’t for everyone. In fact, for many people, this relief method can cause more harm than it’s worth.
You should not consider debt consolidation if:
- You don’t know why you’re in debt. If you can’t pinpoint the reason why you’re in debt, you can’t figure out how you can prevent yourself from getting in this position in the future. If you don’t know why you’re in debt, you shouldn’t consolidate.
- You only have a little debt. If you only have a small amount of debt, consolidating what you owe onto a new card or by taking out a loan may be more work than it’s worth.
- You have more debt than you can afford to pay off in the near future. If you owe more in debt than you earn, you shouldn’t consolidate your debt. Instead, you should look for other more extreme forms of debt relief to assist you.
Debt Consolidation vs Debt Settlement
If you’re in debt, you may be wondering, “What is the difference between debt consolidation and debt settlement?” These two terms might sound similar, but they’re very different.
When used effectively, either of these strategies can help you manage your debt. However, these methods use different techniques, and they offer different benefits and potential drawbacks.
First, it’s important to remember that debt consolidation streamlines the debt you owe and makes it easier to keep track of. This way, you’re only responsible for making one payment each month instead of several different payments to companies you owe.
On the other hand, debt settlement aims to reduce the overall amount of debt you owe. With this strategy, a counselor or other debt settlement employee works on your half to reduce your overall bill amount.
These counselors negotiate on your behalf to lower the overall amount of money you’re responsible for paying back. Once the amount is agreed upon, you start paying the debt settlement company, and they repay the companies you owe using the money you paid them.
If you take advantage of a debt settlement offer, it’s important that you only use a verified company. Otherwise, you could be the victim of a scam.