Looking to find ways to better handle your financials? Here’s a must-read guide on consolidating debts and dealing with credit card debt.
Did you know that the average American household has over $100,000 in debt? With so much money in debt, that means that many families are barely keeping their heads above water.
One of the strategies many people consider is consolidating debts. The only problem is that many people don’t understand how to use debt consolidation or when to use it.
Continue reading this article to learn more about dealing with debt and more about debt consolidation.
What Is Debt Consolidation?
When you’re trying to figure out what to do with debt, this is one of the simplest options available to you. All debt consolidation means is taking all of your debts and putting them into one payment.
The reason many people do this is that it makes it easier to keep track of the debt, and it often lowers the monthly payment.
There are a few different options to consider when you’re looking into debt consolidation.
You might consider one of the following:
- Balance transfers
- Home equity loan or line of credit
- Personal or debt consolidation loans
- Life insurance or retirement plan borrowing
These options all have their pros and cons, but you have to figure out which one is going to work best for your situation. You can view more and see if your situation calls for debt consolidation or not.
Look for a Lower Interest Rate
When you go to consolidate your loans, make sure you look at the interest rates the company offers. Even if the interest rate is lower than what you’re paying now, you need to make sure it isn’t a variable interest rate.
If you consolidate your debt with a variable interest rate loan, they can raise or lower the interest rate, and you won’t necessarily have any warning. When this happens, you might end up paying more money than you were going to pay with your other loans.
You Will Pay Debts Off Over a Longer Period of Time
When you consolidate your debt, the way you’re able to pay less money per month is because you’ll be paying this creditor longer. When you consolidate debt, you usually won’t be saving money.
Again, it’s just there so you can make your payments more manageable. The only way you can save money by consolidating your debt is by getting a loan that offers a lower interest rate.
Keep in mind that you still might not save money with a low fixed rate since you will borrow the money for a longer period of time.
Getting Smart With Consolidating Debts
If you were confused about what you can do when it comes to consolidating debts, now you have more of an understanding. When you know how to make consolidating debts work for you, it can be a great tool.
Do you feel like you need more help with finances? Go through more of our blog posts for help.