Consolidated Credit helps you decide if debt consolidation is right for you.
What is debt consolidation?
Debt consolidation is the process of rolling multiple debts into a single monthly payment. This simplifies debt repayment, because you only have one bill to worry about. It also provides a way to achieve two critical advantages in debt elimination:
- It reduces or eliminates the interest rate applied to your debt, so you can pay back what you owe with lower total costs.
- In most cases, it also lowers your monthly payment so it’s easier to manage debt even on a limited budget.
This combination often means that you can get out of debt faster, even though you pay less each month. That’s because consolidation allows you to pay off your debt more efficiently. By limiting interest charges, you accelerate how fast you can pay off the principal (the actual debt you owe).
Debt Consolidation in Action – a case study from New Jersey.
This debt consolidation story comes from Paul in Keyport. With over $30,000 in credit card debt, Paul paid over $1,200 each month just on those bills.
Consolidated Credit negotiated with Paul’s creditors to reduce his interest rates so it would be easier to eliminate his debt. The program reduced Paul’s monthly payments by over 50 percent.
He could get out of debt in less than five years instead of taking more than 15. Paul saved over $12,000 in interest charges.
And he had this to say about the program: “Five Stars. The program did exactly what the counselor promised and I couldn’t be happier. Consolidated Credit help me save my credit and a lot of money in finance charges.”
What types of debt can I consolidate?
It’s possible to consolidate several different types of debt. However, in most cases you can only consolidate debts of the same type in a single program. So, you can find solutions for credit card consolidation and student loan consolidation, but you must complete them separately.
- Credit card consolidation allows you to consolidate high interest rate credit cards, store cards and other unsecured debts. There are several different ways to consolidate, which we describe in more detail below.
- Student loan consolidation combines student loans into a single monthly payment. There are federal plans that only work for federal student loans. You can also use a private loan to pay off both private and federal student debt.
- Tax debt consolidation takes multiple years of back taxes and combines them into a single consolidated repayment plan. This is better known as an Installment Agreement (IA), which you can set up through the IRS.
Consolidated Credit focuses mainly on helping clients find the right option for unsecured debt consolidation. Unsecured debt is any debt that doesn’t include collateral. So, that’s your credit cards, gas cards, store cards, in-store credit lines, and unsecured personal loans. You can also usually roll unpaid medical bills and even some payday loans in when you consolidate.
Comparing 3 options for consolidating unsecured debt
There are three basic options to consolidate unsecured debt. The best option to use really depends on your situation. That includes what types of debt you need to eliminate, your credit and budget and your goals.
These are the three main options for consolidation:
The first two options offer do-it-yourself consolidation, meaning you largely handle consolidating debt on your own. While most people prefer to handle debt problems on their own, be careful. There are certain risks you need to know so you can avoid them if you use a DIY solution.
Is consolidation the right choice for you?
Consolidating your debt is not the only way to find debt relief. However, these solutions are the best way to eliminate debt without causing credit damage. Consolidation allows you to save your credit from damage caused by charge-offs, late payments and settlement.
Outside of that, consolidation generally gives you a faster, more efficient way to reach zero:
Where should you go to consolidate?
When DIY consolidation won’t work, it’s time to bring in the professionals. But how do you choose the right service provider?
- Consolidation Help Guide: Use this guide to help determine where to go to start consolidating your debt
- Comparing Professional Consolidators: Learn how to recognize a legitimate debt relief service from a scam
Specialized options for consolidation
If you have other types of debt or a unique financial situation, the following guides can help you consolidate effectively:
- Consolidate medical debt: Taking care of unpaid medical bills that passed to collections
- Consolidating payday loans: How to address challenges from high-interest short-term installment loans
- Military debt consolidation: Service Members and Veterans have some unique options available to consolidate debt
- Unemployed consolidation guide: If you have limited income due to job loss, this guide can help you consolidate
The 10 Do’s and Don’ts of Debt Consolidation
5 things you can’t miss
- DO an evaluation of two costs as you consider each option for consolidation:
- Monthly cost
- Total cost (interest charges + debt payoff)
- 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.
- DO your homework and review ALL options for debt consolidation thoroughly before you choose the one that’s right for you.
- 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!
- DO a thorough credit report review once you complete your consolidation plan. All account statuses should be current and balances should be zero.
5 things to avoid
- 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.
- 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.
- DON’Tconsolidate unless the new plan will allow you to pay off your debt in-full within 5 years (60 payments) or less.
- DON’T start spending money on existing or new credit cards until you eliminate the consolidated debt in-full.
- 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.
See how debt consolidation works in action
Every financial situation is different and debt consolidation is not a one-size-fits-all solution. Still, you can see below how consolidation with a debt management program helped these borrowers find relief:
Craig from Omaha, NE
My experience with Consolidated has been excellent. I have one payment remaining and then I’ll have fully paid off $54,000 in debt.
Where he started:
- Total unsecured debt: $54,000.00
- Estimated interest charges: $31,641.24
- Time to payoff: 17 years, 2 months
- Total monthly payments: $2,160.00
After DMP enrollment:
- Average negotiated interest rate: 8.00%
- Total interest charges: $9,954.33
- Time to payoff: 4 years, 4 months
- Total monthly payment: $1,230.00
Erik from Pawtucket, RI
This program has been a big help already. You lowered my payments and cut my rates. Thank you.
Where he started:
- Total unsecured debt: $29,476.00
- Estimated interest charges: $16,689.00
- Time to payoff: 12 years, 3 months
- Total monthly payments: $1,179.04
After DMP enrollment:
- Average negotiated interest rate: 8.05%
- Total interest charges: $4,141.85
- Time to payoff: 4 years, 2 months
- Total monthly payment: $673.00
Todd from Ewa Beach, HI
This is a great service! They’re always very helpful whenever I have a question.
Where he started:
- Total unsecured debt: $37,083.45
- Estimated interest charges: $21,491.50
- Time to payoff: 14 years, 7 months
- Total monthly payments: $1,483.34
After DMP enrollment:
- Average negotiated interest rate: 8.50%
- Total interest charges: $5,973.73
- Time to payoff: 4 years
- Total monthly payment: $897.00