Credit cards and personal loans can add up quickly. You may wonder how you’re going to pay these bills and become debt-free as soon as possible. This may be when you turn to debt consolidation. However, there are a few things to consider to determine if debt consolidation is the right choice for you.
What Is Debt Consolidation?
Debt consolidation refers to the act of combining all of your debt into a single account. Having one loan often allows you to make lower monthly payments, and may even lower the interest rate on your loans, helping you get out of debt faster.
Types of debt that qualify for debt consolidation include:
- Credit cards
- Medical bills
- Student loans
- Utility bills
- Collection bills
- Payday loans
You could be debt-free in 24 to 36 months.
How Does Debt Consolidation Work?
There are a few ways in which you can consolidate your debt. The most common are:
- Obtaining a balance-transfer credit card with a 0% interest rate. This credit card allows you to transfer all your existing debts onto a single card. You can then pay off your existing balance in full or make payments at a potentially lower interest rate.
- Applying for a debt consolidation loan. Should you qualify for a debt consolidation loan, you’ll receive a lump sum for all of your debts, which you can use to pay them off. Then, you’ll pay back this new loan over time.
You can also choose to take a 401(k) loan or a home equity loan to help consolidate your debt. However, both pose a significant risk to your retirement or home.
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When You Should Choose Debt Consolidation?
Debt consolidation is a good option for individuals who have a good credit score and a manageable amount of debt. People who have good spending habits are also good candidates.
Additionally, debt consolidation is a good option if:
- You have good credit and qualify for a 0% interest rate credit card
- Your total debt doesn’t exceed 40% of your gross income
- You have made changes to prevent your debt from increasing
- Your cash flow consistently covers your debt payments
Should you fall into any of these categories, debt consolidation may be a good option.
One important fact to remember about debt consolidation is that your debt is not forgiven or reduced. You must pay the full balance and spend a few years in debt. You’ll also need to change your spending habits to avoid accumulating further debt.
If you’re unable to make these changes or want to pay off debt faster, you may want to consider debt resolution. Debt resolution options can help you get out of debt faster, avoid bankruptcy and help you settle your debts for less money than if you were to choose a debt consolidation loan.
Get Your Free Debt Assessment Today
If you’re wondering whether debt relief is right for you, contact the experts at CreditAnswers. We’ll provide you with a free debt assessment to help you find a solution that’s right for you.