How can debt consolidation help you?

1
Provides a single monthly payment plan
This debt solution combines multiple bills into one payment, which can be eliminated through a program or a loan. You get an opportunity to pay off debt at a reduced interest rate and amount.

2
Helps you get out of debt quickly
This debt relief option helps you eliminate debt in 3-5 years due to interest rate reduction. You can release your financial burden and start working on your financial goals soon.

3
Helps you repair credit
Debt consolidation is a good option for the people with bad credit. It helps to improve payment history, lower credit-utilization ratio, and improve the FICO score.

When is it good to consolidate debt?

Idea

Debt consolidation is a good debt relief option under the following circumstances:

  • You have multiple bills with multiple deadlines
  • You’re paying a high APR on your credit cards
  • Debt collectors are threatening to serve summons
  • You want to improve your credit score
  • You want to get rid of unsecured debts
  • You want to simplify your monthly payments
  • You want to avoid or stop wage garnishment
  • When you want to consolidate debt into one monthly payment

Debt consolidation can be bad if you don’t change your past spending behavior. If you don’t follow a budget and overspend with credit cards, then this debt solution won’t help you.

3 Ways to consolidate debt

Consolidation program

A debt consolidation plan helps to reduce interest rates on payday loans, credit card bills, utility bills, medical bills, and utility bills. You have to make single monthly payments at a reduced interest rate. If you fail to make monthly payments, all the concessions will be revoked immediately.

Consolidation loan

A consolidation loan replaces your multiple creditors with only one lender. You have to make single monthly payments to one lender.
Typical debt consolidation loans include personal loan, home-equity loan, and consolidating student loans.

Balance transfer card

A balance transfer credit card helps you pay off your debts at 0% introductory interest rate. The catch is, you have to pay off the overall balance within 6-18 months. Otherwise, you have to pay 13-27% interest rate on the remaining balance.

What are the pros and cons of debt consolidation?

Multiple benefits of debt consolidation often make it an appealing debt relief option for many consumers. It compels consumers to overlook the potential downsides of debt consolidation services.
Here are a few advantages of using debt consolidation options that you should be aware of especially when you want to consolidate debts.

Pros of debt consolidation

  • 1) Consolidate debt into one payment
    No more multiple deadlines. Only one monthly payment is enough to take care of your multiple credit card bills. This helps you to manage your debts comfortably.
  • 2) You can protect your credit score
    Late payments or missed credit card payments drop your credit score. When you consolidate debts into a single monthly payment plan, you can avoid late payments and a credit score binge.
  • 3) You can get rid of debt quickly
    One of the biggest benefits of debt consolidation is that you can get out of debt quickly. Debt consolidation allows you to pay a lower interest rate on your credit cards. This helps to lower your monthly payments and make you debt free sooner.
  • 4) You can lead a stress-free life
    Debt consolidation makes your life easy and stress-free. When you’re in debt, collection agencies call you almost every day and ask you to send payments immediately. They levy heavy penalties and additional fees on your accounts too. All these things make you emotionally stressed. When you consolidate your debts, the debt consolidation company receives your collection calls. They also make smart plans to waive off additional fees and penalties.

Cons of debt consolidation

  • 1) You can be in bigger debt problems
    You can’t use the cards that have been enrolled in the debt consolidation program. You can’t use them for shopping or any other purpose. Even though those credit card accounts are frozen, that doesn’t mean you can’t shop at all. If you have other credit cards, then you can use them for shopping. But that would mean taking on fresh debt, which is bad. You would never get out of debt.
  • 2) You can’t buy whatever you want
    Since you have to make monthly payments for around 2 years, so you have to save dollars every month. This means you can’t splurge. You can’t buy whatever you want. You have to control your urge for shopping.
  • 3) You can’t leave the payoff plan
    Once you have enrolled in the debt consolidation service, you can’t leave it midway. You have to make the monthly payments on time. If you stop making payments, then you may face additional penalties. Plus, your credit may get damaged. When you enrolled in the debt consolidation program, your creditors agreed to reduce the interest rate and waive off penalties. If you leave the program, then you have to pay the original interest rate and penalties.
  • 4) You have to pay a fee
    Debt consolidation companies charge a fee for consolidating your loans. You have to pay that fee every month to the debt consolidation company. If the fee is too high, then you won’t be able to save much.

How to compare all the debt consolidation options

Here is a comparative analysis of all the options. Check out the main features and recheck your requirements to decide how to consolidate debt in the best way.

Features Debt consolidation program Debt consolidation loan Balance transfer cards
Interest rate Fixed Fixed Fixed
Collateral Nil Yes, in case of a secured loan Nil
Monthly payments Low Low in case of a HELOC Low
Penalties Waived off Waived off Waived off
Free counseling Yes No No
Collection calls Less/Nil Nil Nil
Repayment term 3-5 years Can be long or short 12-18 months
Effect on the credit report Paid in full Paid in full Paid in full

Where can you get debt consolidation information?

Articles

You can get tons of information from articles (how-to, guides, tips, infographics, white papers, case studies, success stories, checklists, etc). You can also watch videos to get real-time information.

Online debt forums

You can get countless tips from online debt forums. You can ask various questions to the industry experts to combine debt into one payment. You can also get ideas on how to deal with creditors and debt collection agencies.

Better Business

You can get valuable information on the consolidation companies from here. The BBB rating lets you know if a company is good or bad.
Read the reviews and check out the number of complaints minutely.

Friends and family

You can ask your family and friends to share their experience if they have consolidated debts previously. You can ask them to recommend a good debt consolidation company and a few tricks to consolidate debt into one payment.

Can debt consolidation help to repair credit?

Debt consolidation helps to improve your credit score as long as you make timely payments. When you take out a balance transfer credit card or enroll in a consolidation program, your FICO score may go down for a short period of time. However, if you start paying off debt on time, your FICO score will recover and improve within 6 months.

When you choose a consolidation loan, it helps to improve your credit score immediately. Your FICO score is already low due to poor payments. When you pay off your existing loans with a new loan, your credit-utilization ratio becomes low and it helps to improve your FICO score.

repair credit image

Can you consolidate your loans online?

Debt consolidation services are available online. Some debt consolidation companies and law firms offer their services online. The debt counselors call you up and explain the entire consolidation process in detail. If you’re convinced, then you can enroll in the program online. The debt counselors will contact your creditors, negotiate with them, and arrange an affordable payment plan over the phone. You will make monthly payments to the debt consolidation company online and they will pay your creditors on your behalf.
You can also apply for online debt consolidation loans within a few clicks. All you need to do is submit a few details online and the lenders will start processing your loan application soon.