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- If you're struggling to pay multiple debts every month, debt consolidation may be right for you.
- You can use personal loans, balance transfer credit cards, or home equity to consolidate your debt.
- Addressing how you got into debt in the first place and establishing new habits is key.
When you're in debt, it can feel impossible to get out from under the weight of it. If you're looking for options to help you get out of debt and make repayment easier, debt consolidation may be right for you.
What is debt consolidation?
Debt consolidation takes a group of different debts you owe and turns them into one monthly payment. For example, let's say you have a few credit cards, all carrying a balance. You're tasked every month with making several payments, each at different amounts, with different due dates and different interest rates. It can be a lot to manage.
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Debt consolidation can help make your payments and monthly bills more manageable. It helps you condense your debt into one simple payment. In some cases, you may be able to save money on interest if your loan's interest rate is lower than the APR on your debts.
How to consolidate debt
If managing your payments has become difficult, you might consider debt consolidation. There are various tools you can use to consolidate your debt.
Personal loans
A personal loan is a flexible loan option that can be used for various personal reasons, including debt consolidation. Personal loans are typically unsecured, meaning that they are not backed by any type of collateral, like a home or a car.
Using a personal debt consolidation loan, you can pay off all your various debts then have just the personal loan to pay back. One perk with personal loans is that they typically have better interest rates than credit cards, so you could save money by using a personal loan if you have high-interest consumer debt. The best personal loan for you will depend on your credit score, which will determine what you qualify for and can lower your rate.
Balance transfer credit cards
Another option for debt consolidation if you have credit card debt is a balance transfer. A balance transfer is when you transfer the balance you have on various credit cards to one balance transfer credit card that has a lower interest rate (or, in some cases, a 0% interest rate). Read our guide on the best balance transfer credit cards here.
The important thing to note here is that many of these low or 0% interest rates are promotional and only last a certain amount of time. For example, the Chase Slate Edge credit card offers a competitive 0% offer.
If you can pay off your debt in 15 months, or make a significant dent in your balance during that time, you can save money on interest and pay down debt faster.
You also want to be aware of balance transfer fees, which are typically 3 to 5% of your balance. Do the math to make sure doing a balance transfer is advantageous for you, and make sure to compare all the details of credit cards vs. personal loans.
Also, be mindful of having access to another credit card. If you haven't addressed the spending issue that got you into debt in the first place, having a balance transfer credit card could lead you into more debt if you keep spending.
Home equity loan
If you're a homeowner, you may be able to access a home equity loan as a tool for debt consolidation; a home equity loan allows you to borrow money against your house to pay off other debts.
What to consider before consolidating your debt
Debt consolidation can be used to make debt repayment more manageable and, in some cases, you could even save money on interest. It's important to understand any associated costs or fees with the debt consolidation tools listed above. You want to read through the fine print and look at the terms and conditions.
Most importantly, address the reason you got into debt in the first place and come up with a plan to pay off your debt. If you don't have a strategy in place, these tools could mean winding up in even more debt.
Frequently asked questions
With debt consolidation, you take out a new loan to pay off debts you owe on multiple different accounts. After that, you only have the debt-consolidation loan to pay off. That's one payment every month instead of several.
One disadvantage of debt consolidation is that depending on your current financial situation, your new loan may have a higher rate than your old ones. This could cost you more over the life of your loan.
The major point of debt consolidation is to compress multiple monthly loan payments into a single monthly payment. This makes your debt easier to keep track of and manage.
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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.
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