Reduce your interest rates and monthly payments
Debt Consolidation in Action, a case study from Florida, Today’s featured debt consolidation story comes to us from Fort Lauderdale, Florida
With close to $50,000 in credit card debt, Stephanie worried she was headed for bankruptcy. But through debt consolidation, Consolidated Credit lowered her interest rates to less than seven percent.
As a result, Stephanie went from paying almost $2,000 per month to just over $1,000. Instead of taking over 15 years to pay everything off, she could get out of debt in just four years. And she saved over $8,000 in total interest charges.
Stephanie had this to say about her experience: I can’t put into word how this has changed our lives. We were almost $50,000 in debt but thanks to Consolidated Credit we’ll be debt free in 3 months.
What is debt consolidation?
Debt consolidation is the process of combining multiple debts into a single monthly payment. Instead of worrying about multiple bills to pay off each month, you only have to worry about one.
In most cases, you can only consolidate similar types of debt together. In other words if you have credit cards and student loans to consolidate, they get consolidated separately. You get one plan to pay off your credit cards and another to repay your student loans.
Aside from simplifying your bill payment schedule, consolidation usually focuses on achieving one of two goals (or both):
- You reduce or eliminate interest charges applied to your debt
- You lower the monthly payments so it’s easier to manage the debt
When it comes to credit card consolidation, you usually want to try and accomplish both. However, for things like federal student loan consolidation, interest rates are not based on your credit score. As a result, most consolidation plans focus on making it easier to repay what you owe.
What types of debt can I consolidate?
Unsecured debt is the most common. That includes your credit cards, gas cards, store credit cards and in-store credit lines, and unsecured personal loans. In some cases, you may also be able to consolidate unpaid medical bills and payday loans with your unsecured debts.
Most of the information you see below focuses on unsecured debt consolidation. However, there are two other types of debt that may be consolidated:
- There are several ways of consolidating student loans, whether your loans are private or federal. You can read more in Consolidated Credit’s guide to Student Loan Consolidation.
- It’s also possible to consolidate multiple years of unpaid IRS income taxes in a single repayment plan. This is known as an Installment Agreement (IA). If you owe back taxes, consult with a certified tax professional about this option for consolidation.
Comparing options to consolidate unsecured debt
There are 3 basic options for consolidating unsecured debt like credit cards:
It’s important to note that the first two options offer do-it-yourself consolidation. While people often prefer DIY solutions, make sure to evaluate these options carefully. There are certain increased risks that come with consolidating debt on your own.
Is consolidation the right choice for you?
This is not the only solution you can use to eliminate debt. However, it is one of the best solutions available to lower monthly debt payments and save your credit.
Where do I go to consolidate?
It’s not always necessary to go through a third party to consolidate your debt. For DIY debt consolidation solutions, you simply work with a lender or creditor to get the financing you need for consolidation. However, the management of the plan rests solely with you. Only assisted debt consolidation requires third-party help all the way through the program.
- Consolidation Help Guide: Where to go to start your consolidation plan
- Comparing Companies: How to choose a reputable program provider
Specialized options for consolidation
Debt consolidation can work for more than just credit cards. Other unsecured debts, such as payday loans and medical debts, can be consolidate as well. There is also specialized consolidation for student loan debt and debts held by military Service Members and Veterans. The following articles can help you explore these solutions:
- Consolidate Medical Debt: How to consolidate unpaid medical bills that have passed to collections.
- Payday Loans and Consolidation: It is possible in some cases to consolidate payday loans; learn how.
- Military Consolidaton Guide: Explore specialized debt consolidation options that are only open to Service Members and Veterans.
- Student Loan Consolidation: Learn how to consolidate private and federal student loan debt to accelerate repayment.
10 Do’s and Don’ts of Debt Consolidation
- DO an evaluation of two costs as you consider each option for consolidation:
- Monthly cost
- Total cost (interest charges + debt payoff)
- DON’T confuse debt settlement with debt consolidation. The former causes credit damage because you eliminate debt for less than the full amount owed; consolidation pays what you owe in-full in a way that works for your budget.
- DO what you can to achieve the lowest interest rate possible – in other words, aim for zero but recognize that anything under 10% will usually provide the benefit you want.
- DON’T agree to pay any fees until some actual work is done. This applies specifically to assisted consolidation through something like a credit counseling agency.
- DO your homework and review ALL options for debt consolidation thoroughly before you choose the one that’s right for you.
- DON’T consolidate unless the new plan will allow you to pay off your debt in-full within 5 years (60 payments) or less.
- DO your best to pay off the debt as quickly as possible – if your income increases and you can make larger or extra payments, do it!
- DON’T start spending money on existing or new credit cards until you eliminate the consolidated debt in-full.
- DO a thorough credit report review once you complete your consolidation plan. All account statuses should be current and balances should be zero.
- DON’T worry about credit damage. If you consolidate correctly and stick to your payment schedule then the effect on your credit should be neutral or positive.