How to Know When It’s a Good Time to Consolidate Your Debt

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Getting out of debt is usually a much harder thing to do than getting in debt, especially if you end up with a large balance and a high interest rate that feels like it will take more than a decade to pay off. Therefore, many people are turning to debt consolidation loans to pay off their balance faster.

There are many benefits, along with a few caveats, to keep in mind if you’re considering consolidating your debt. Of course, everyone’s situation is different, so you should always check with a financial advisor to make sure your unique personal needs are met before making your next move.

Below, Select breaks down a few circumstances that indicate when consolidating your debt would be a good step for you.

You have several monthly debt payments

Consolidation literally means combining several things into one more cohesive whole – Debt consolidation therefore consists of taking several monthly debt payments and replacing them with a single monthly payment.

If you have several large monthly bills to pay, consider this the first sign that debt consolidation might be a good next step for you. Consolidating multiple payments into one can help you feel more financially organized and less stressed about having to split your paycheck to pay them off.

Let’s say you take out a debt consolidation loan – this means you would request a specific amount of money and once approved, the lender would send the funds to your creditors and pay off those balances. In other words, the only monthly payment you would make is for the loan itself.

Some personal lenders, like Payoff, for example, offer personal loans as low as $5,000 and as high as $40,000 that are intended exclusively for consolidating your debt.

Other lenders make the debt consolidation process as easy as possible by allowing you to send the funds directly to your credit card companies – most personal lenders will instead deposit the funds into your checking account so you can use money as needed.

Personal loans from Marcus by Goldman Sachs, for example, allow borrowers to send funds directly to 10 creditors for debt consolidation. You will only have to provide the names, addresses, account numbers of creditors and the amount of money you wish to send to each, and from there you will only have to make monthly payments for debt consolidation loan.

Repayment of personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation/refinancing

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

    0% to 5% (based on credit score and application)

  • Prepayment penalty

  • Late charge

    5% of the monthly payment amount or $15, whichever is greater (with a 15-day grace period)

Marcus by Goldman Sachs Personal Loans

  • Annual Percentage Rate (APR)

    6.99% to 19.99% APR when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, home improvement, wedding, moving and moving or vacation

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Your debts carry high interest rates

High interest rates can prevent you from finally being debt free, especially if you have multiple payments to make and can only afford to pay the minimum balance each month. Since this minimum payment is most likely earmarked for a portion of the interest — not the principal — you’re actually racking up more and more interest charges each month.

One of the main advantages of debt consolidation is the possibility of a lower interest rate, which can help you save hundreds or even thousands of dollars in the long run.

Although the new interest rate you receive may not always be significantly lower than your current rate, some savings are always better than nothing. A small percentage change with just one monthly payment can help you save money and feel like you’re in a little better control of your finances.

If you’re concerned that you won’t qualify for a low enough interest rate after consolidating your debt, you might instead consider using a 0% APR balance transfer card, which would allow you to transfer the balance from one or more credit cards. who have high interest rates on a credit card with an introductory period where no interest is charged. However, most balance transfer cards will charge a fee for each transfer.

From there, the goal is to pay off as much of your balance as possible since you won’t have to worry about interest charges accumulating during this introductory period. The Citi® Double Cash Card allows you to make a balance transfer from the date of the first transfer and make monthly payments at an initial APR of 0% for the first 18 months (14.24% – 24, 24% variable APR after). Alternatively, the Citi Simplicity® Card allows you to make payments at 0% interest with an introductory APR for 21 months after making your first balance transfer (14.99% – 24.99% variable after). For both cards, balance transfers must be completed within 4 months of account opening.

Citi® Dual Charge Card

  • Awards

    2% Cash Back: 1% on all qualifying purchases and an additional 1% after you pay your credit card bill

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% for the first 18 months on balance transfers; N/A for purchases

  • Regular APR

    14.24% – 24.24% variable on purchases and balance transfers

  • Balance Transfer Fee

    For balance transfers made within 4 months of account opening, an initial balance transfer fee of 3% of each transfer ($5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($5 minimum) applies

  • Foreign transaction fees

  • Credit needed

Citi Simplicity® Card

  • Awards

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

  • Balance Transfer Fee

    5% of each balance transfer; $5 minimum

  • Foreign transaction fees

  • Credit needed

You already have a good credit rating

It is important to ensure that your credit score is in good standing before applying for a debt consolidation loan, as the new interest rate you receive will largely depend on your credit score and credit report. Generally, a higher credit score will get you lower interest rates, while a lower credit score will get you higher interest rates.

Although there are personal lenders and debt consolidation lenders who accept applicants with less than ideal credit scores, you still run the risk of being hit with a slightly higher interest rate if your score credit is lower.

Before applying for a debt consolidation product, check your credit score. You can use Experian to look it up for free and check your credit report so you know exactly what’s there and can review anything that might affect your chances.

Experian Dark Web Scan + Credit Monitoring

On Experian’s secure site

  • Cost

  • Credit bureaus monitored

  • Credit score model used

  • Dark web analysis

  • Identity insurance

You have a plan to avoid going into debt

Although consolidating your debts can help you pay them off faster, it won’t necessarily prevent you from the debt cycle. Shortly after becoming debt free, many borrowers find themselves falling back into unhealthy habits and end up taking on more debt. Or, while paying off their consolidation loan, they may continue to overspend on the credit cards they use to pay off the loan, which means they are now obligated to repay the loan and make monthly payments. on a high interest credit card. again.

Debt consolidation itself is just another tool to help mitigate multiple high interest monthly payments. It is important to understand what leads you into debt in the first place in order to avoid repeating these financial patterns in the future. By realizing this and creating a plan to stay on track, you’ll be more likely to have the most successful debt consolidation experience possible.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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