What is Debt Consolidation?
Debt consolidation is a form of debt help that involves combining multiple debts into a single payment through a loan or a program.
It can be incredibly difficult to manage a number of debts with different terms and interest rates and debt consolidation can go a long way towards simplifying the process of repayment.
Debt consolidation can also come with benefits like a lower interest rate or savings, depending on the type of consolidation you use.
What is Debt Consolidation?
Debt Consolidation Loans
Debt Consolidation Programs
Credit Card Balance Transfers
Pros and Cons of Debt Consolidation
When is Debt Consolidation a Good Idea?
How to Consolidate Your Debt With Beyond Finance’s Help
Debt Consolidation Loans
One type of debt consolidation is a debt consolidation loan. Typically, people take out this kind of loan from a bank, credit union, or online lender. But you can also use a home equity loan or borrow from your 401(k) to consolidate and pay off your outstanding debts (though this can come back to haunt you later).
With any of these consolidation loan options you should be careful to understand the terms and interest rates to make sure you’ll be in a better position than you were before. It can be tough to qualify for a debt consolidation loan with bad credit – at least for one with lower interest rates.
Debt consolidation loans with the lowest rates require at least a good credit score.
But if you’re offered a loan with favorable terms, this can be a very reasonable way to pay down your debt — just know that you won’t see any actual reduction in what you owe.
Debt Consolidation Programs
Another way to consolidate your debt is through a debt consolidation program. A debt consolidation company like Beyond Finance can set you up with a customized program that can:
- Consolidate your payments into a single payment
- Significantly lower that payment so you get money back in your pocket each month
- Help you to pay off your enrolled debts in 24–48 months
One other big benefit of a debt consolidation program is saving on interest. Many people who need help with their debt are stuck making minimum payments. This high interest debt can snowball into an even worse situation because the compounding interest can build your debt higher each month. By enrolling in a program like this, you’re sidestepping a future in which you could be stuck in debt for decades, potentially forced to pay twice or three times what you currently owe.
Credit Card Balance Transfers
One debt consolidation method that can help in paying off your credit card debt is to transfer your credit card balances to another card that has a 0% interest rate for a limited time.
To consolidate credit cards in this way, you must have a good-to-excellent credit score. Consolidating debt through balance transfer can also be risky because the 0% introductory rate usually expires after a 12–18 month period. If you don’t think you can pay off all of your existing debt before then, this is usually not a great choice.
Pros and Cons of Debt Consolidation
Pros
- A lower monthly payment and/or a lower interest rate
- Obligation to only a single payment
- Debt is typically paid off more quickly
Cons
- Potential temporary drop in credit score
- Requires either an income or savings
- Caution must be used to avoid predatory high-interest lending
When is Debt Consolidation a Good Idea?
Some form of debt consolidation is probably a good idea if one or more of these statements apply to you:
- You’re in debt and paying high interest on your accounts
- You’re having trouble keeping track of all your payments
- You’re only able to afford minimum payments
- Your debt balance isn’t going down
Debt Consolidation FAQs
What kind of debts can be consolidated?
While there are special “secured debt consolidation loans,” in most cases, debt consolidation involves unsecured debt. Most kinds of unsecured debts (debts that aren’t attached to collateral like a home or car) can be consolidated. Credit card debts, medical debts, unsecured personal loans, and payday loans are good candidates for debt consolidation.
While student loan debt is also considered unsecured debt, only certain private student loans can be consolidated – never federal student loans.
Does debt consolidation affect buying a home?
If you’re looking to buy a home in the very short term, debt consolidation might not be the right fit. Most kinds of debt consolidation will cause at least a small drop to your credit score and this can affect your mortgage interest rates.
On the other hand, debt consolidation may actually put you in a better position to buy a home in a few years. Being in debt can also raise your APR, and even put your ability to get approved for a mortgage at risk.
As your debt is being paid off, you can approach lenders in better financial health and access better mortgage terms.
How do you qualify for debt consolidation?
Both a credit card balance transfer and debt consolidation loan (with a competitive interest rate) will require a good-to-excellent credit score.
A debt consolidation program like Beyond Finance will typically only require that you have a certain amount of debt (our clients must enroll at least $10,000 in debt), and some kind of income.
There are no requirements to borrow on your 401(k), but there tend to be strict loan terms about repayment. Repayments are usually deducted each payroll, have interest attached, and generally must be completed within 5 years. Another thing to consider: if you leave your job, you may have to repay the loan in full immediately.
How to Consolidate Your Debt With Beyond Finance’s Help
Carrying around debt is no way to live. The credit system is failing Americans by making it too easy to fall into debt, and next to impossible to climb back out. You deserve better.
Beyond Finance, awarded an A+ accreditation from the Better Business Bureau, wants to help by setting you up with a personalized program that can lower your monthly payment and help you pay off that debt much more quickly than with minimum payments.
If you’d like to learn more about how much Beyond Finance can help you save while you pay off your debt, get a free consultation with a Consolidation Specialist. They’ll walk you through your options and help you make the best decision for you.
What is Debt Consolidation?
Debt Consolidation Loans
Debt Consolidation Programs
Credit Card Balance Transfers
Pros and Cons of Debt Consolidation
When is Debt Consolidation a Good Idea?