Your Top 5 Debt Consolidation Questions Answered

Debt can be a heavy burden but there are tools that can help you regain control. If you’re juggling multiple loan payments and feeling overwhelmed, debt consolidation could be the solution that brings you relief. Let’s explore the what, when, and how of debt consolidation, empowering you to make an informed decision about your financial future!

 

What is debt consolidation?
Debt consolidation is a financial strategy that helps streamline your debts by combining them into a single loan, simplifying payments, and potentially reducing your overall interest rate and monthly payment. You're essentially taking out a new loan to pay off your existing debts through various methods, like a balance transfer credit card or home equity loan. 

 

The method you choose will depend on your unique financial situation and goals. Consolidating your debt has several benefits. It simplifies your repayment process, can lower your interest rate and monthly payment, and helps you work towards becoming debt-free. 

 

When should you consider debt consolidation?
While consolidation can be a valuable tool for managing debt, it's crucial to determine if it's the right solution for your unique financial situation. Some signs that indicate when and how to consolidate debt include:

 

• You have multiple credit cards or loans with high interest rates.
• You find it challenging to keep up with your monthly payments.
• A simplified debt repayment plan would help.

Most importantly, now is the time to evaluate your spending habits and determine your readiness to avoid accumulating more debt. Consolidating your debt is only useful if you’re actively committed to paying it down!

 

How do you get started consolidating your debt?
If you’re considering debt consolidation as a potential solution, it’s crucial to seek guidance from a trusted financial institution like BHFCU. Our experienced team is well-versed in all financial situations and loan types. We’ll help you:

 

• Assess your current debt situation. Together, we’ll evaluate your existing debts, including the total amount you owe, the interest rates, and the monthly payments.
• Create a debt consolidation plan. We’re here to help you do the research to determine which of many consolidation options best fits your situation. We’ll listen to your needs and goals, compare the associated interest rates, terms, and fees for each loan option, and find a strategy that aligns.

What are the most common debt consolidation options?
Your debt consolidation goals will determine which option is best for you. That’s where our team comes in to guide the discussion and help you make an informed decision.

 

• Balance Transfer. Transfer your high-interest credit card balances to a single, lower interest rate card. At BHFCU, our new cardholder special offers 2.90% APR on your transfer for 12 months, allowing you to pay down your debt faster at a low rate with lower monthly payments. Dive into more on this option here.
• Home Equity Loan. If you own a home, you may be able to borrow against the equity to consolidate debt at a lower rate. With longer loan terms, this option can help keep monthly payments lower. But remember to take closing costs into consideration.
• Cash-out Refinance. If you have equity in a vehicle or rec vehicle, you could use it to consolidate higher-rate loans like credit cards or personal loans. This option streamlines payments and can help you save with lower interest rates and payments.

Check out our 4 Effective Tools to Help Reduce Your Debt blog for a deeper dive into when these options may be right for you!

 

How do I make my debt consolidation successful?
When you choose to start the journey to debt-free living, it’s important to keep your eye on the prize! Here are a few tips to stay on the right track.

 

• Make your payments on time. Late payments can result in fees and penalties, which can set you back in your pay-down journey and negatively impact your credit score.
• Avoid accumulating new debt. This is your time to focus on reducing your debt, not taking on more. Make sure you’re ready before starting your journey.
• Pay off your debt as fast as manageable. If you can make extra payments, do so whenever possible. You can reduce your overall interest and shorten the repayment period by paying more than your monthly requirement.