There are multiple strategies you can use to pay back your outstanding debts. One popular method is debt consolidation, which could help to reorganize your debt and reduce your monthly payments. However, it’s not right for everyone, and consolidating without a plan could lead to expensive complications.

Is debt consolidation right for you? Read on to learn more.

What Is Debt Consolidation?

Debt consolidation is the process of combining multiple debts into one. This allows you to focus on one monthly payment rather than multiple payments. Additionally, consolidating your debts can also help you secure a lower interest rate, lower monthly payments and better loan term.

How Can I Consolidate?

There are a few different ways to pursue debt consolidation, including the following:

  • Personal Loan:Using the money gained from a new loan, a borrower can pay off other debts quickly. The borrower then focuses on paying down the new loan, which ideally has a lower interest rate and lower monthly payments.
  • Credit Card Balance Transfer:Borrowers can apply for a new credit card with more favorable terms, like a 0% introductory interest rate. They can then transfer multiple debts onto the new credit card and pay the debt off before the introductory period ends.
  • Debt Consolidation Company:Borrowers receive guidance from a team of debt specialists, who provide them with a customized program that results in a single, lower monthly payment.

Is it Time to Try Consolidation?

When it comes to managing debt, you have options. If you answer “yes” to the following questions, debt consolidation might be right for you.

  • Are you juggling multiple debt obligations?If your debt is already under one roof, it doesn’t make much sense to consolidate it. You may want to reach out to your creditor and see if you can agree on different terms or a lower interest rate.
  • Have you tried keeping up with separate payments on your own without success?Some people are able to keep track of their payments and pay down multiple debts on their own. If you find yourself only making minimum payments or getting overwhelmed with tracking your due dates, a consolidation strategy could help.
  • Do you have a significant amount of debt that isn’t equal to more than half of your income?If your debt is on the lower side, you may be able to tackle it with extra focus and elbow grease. If your debts are $10,000 or more, consolidation could help, but only if you have a consistent income to help you pay it back. If your debt is equal to more than half of your income, or if you have no income at all, debt consolidation might not be the best option for you.

Get Prepared to Consolidate

You’ve done your research and determined that you’re a good match for debt consolidation - great! Now it’s time to prepare for success. Before agreeing to a personal loan, credit transfer or debt consolidation program, make sure you’ve completed the following steps:

  • You’ve mapped out a plan to pay it off.Successful consolidation doesn’t end when you’ve put all of your debt in one place. You still have to pay it back! Make sure you’ve incorporated your payments in your monthly budget. If you’re taking advantage of an introductory offer, like a temporary 0% interest rate on a new credit card, plan to pay everything back before the promotional period ends and the regular rate kicks in.
  • You’re prepared to manage your everyday spending along with your debt payments.Ensure that you won’t need debt consolidation again in the future. Look into your financial commitments outside of your debt and adjust your spending when necessary. This can help to reveal weaknesses in your finances and find opportunities to cut back, save, and redirect more money towards debt repayment.
  • You’ve shopped around and found a lower interest rate.If you’re in dire need of financial help, it may be tempting to go with the first option you see. Unfortunately, rushing the research process could lead to you paying more in the long run. Slow down, read all of the fine print, and take the time to find the best deal for you.
  • You’ve consulted with a debt professional.You don’t have to consolidate on your own. Many trustworthy debt consolidation organizations offer free consultations. We’ve done the research and created a list of the five that can help you get back on track.

Our 2024 Picks for the Top 5 Debt Consolidation Companies

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