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How to Know if Debt Consolidation Will Work for You

Looking to pay off debt? It can be quite the challenge. But it is one of the most rewarding journeys in the end once you are on the other side of it.

The problem with paying off debt for some is the amount. The sheer number of dollars one owes can paralyze you. That is especially true if that debt is spread out over many accounts. It can be overwhelming when so many different bills are coming at one time.

That is where consolidating debt may makes sense for some. Consolidating debts involves getting a single account to pay off multiple old loans. It’s also one of the common reasons people acquire a personal loan. It allows them to consolidate all of their existing loans into a larger one that offers the best repayment terms or a lower monthly interest rate.

However, before consolidating your loans, remember that this option isn’t for everyone. If you want to know whether or not debt consolidation is good for you, here are some ways to find out.

You Have a Good Credit Score

Debt consolidation is linked to your credit score. This is true whether acquired through balance transfer cards or a no bank account loan. Most lenders have a minimum credit score required to receive a loan, even if they may not publicize it. You might only be eligible for a debt consolidation loan if your credit score is above 670.

You may be lucky enough to find a loan with no credit check that you can use to consolidate your loans, even with bad credit. In that case, you won’t be qualified for debt consolidation with a lower interest rate, making your effort useless. 

Settling your payments on time and utilizing just under 30% of the available credit on each card are the simplest ways to raise your credit score. It can also help if you avoid hard queries on your credit report, settling collection accounts, or requesting a higher credit limit.

It is important to remember that all these efforts could take up to a few months to reflect on your credit record. If you currently have a bad credit score, debt consolidation probably isn’t an option. However, it could become a good option once you fix your credit score. 

Related Content: Is Your Credit Score  Simply a Measure of How Much You Love Debt?

You are Looking for A Simple Way to Pay Debt

The key to debt consolidation is simplicity and usability. This option will result in a single payment, which can be quite convenient. Multiple debt payments can be quite stressful. If you have trouble planning, you might fall short on all of your payments. 

Additionally, you can arrange an auto-pay on your credit card or debt consolidation loan so that you won’t have to worry about missing a payment each month. Therefore, debt consolidation may be a wonderful option to streamline your debt repayment.

Related Content: How to Get Out of Debt and Win in 5 Simple Steps

You Want to Avoid Accumulating More Interest

If debt consolidation is done properly, interest costs can be reduced. It’s particularly true if you’re paying credit cards with variable interest rates that are usually high. 

You’ll have to pay interest if you take out a personal loan. But if your credit is good, it will probably be less than that. Additionally, you will enjoy a great, extended interest-free term to pay off your bill if you use a balance transfer credit card.

Besides, imagine having multiple loans at the same time. All the interest rate accumulates every month, especially if you fail to pay even a single repayment schedule of each debt. If you are currently facing this problem of accumulating interest rates, then debt consolidation can help you.

You Plan Not to Use Your Card Anymore

Once you consolidate your credit cards into a personal loan or even on a balance transfer card, the balances of all your credit cards will go down to zero. With no balance left, it can be tempting to use your cards for shopping again. 

Your spending habits can greatly impact how well a debt consolidation will work for you. Charging on these credit cards while you’re still paying on your debt consolidation can put you into a deeper debt hole. 

If you’re confident enough that you won’t get tempted to use your zero-balance credit cards, getting a debt consolidation can be a very effective way to manage your debt. 

And if you are tempted to use your credit cards again, cut them up and close the accounts.

You Have A Realistic Budget

Only consolidate your debt if you have sufficient funds to pay for the new monthly payment. Even though your monthly repayment could reduce, consolidation will only work if you can pay your monthly debt obligations. 

It would be helpful if you find a way to increase your monthly income to establish a realistic budget each month that can cover the repayment of your newly acquired loan. You may need to revisit your budget and cut expenses in some areas so that the numbers work.

And once you have your budget it place, you have to stick to it. This goes back to having discipline with your spending habits. If you can’t control your spending, more than likely you will end up right back in debt. 

Related Content: The Ultimate Guide on How to Make the Best Monthly Budget

Alternatives To Debt Consolidation

If you’re hesitant about debt consolidation, here are five other options for you to choose from:

  • Cash-Out Refinance
  • Budget Adjustment
  • Debt Management Plan
  • Balance Transfer Credit Card
  • Home Equity Loan or HELOC

Make sure to explore and understand all of these options and how they will impact your debt repayment plan. The last thing you want to do is slow down your progress or increase your debt amount by not understanding what you are getting into.

Final Thoughts

It’s excellent that we have options because not all debt repayment strategies will be effective for everyone. If you’re considering debt consolidation, consider the factors mentioned above and choose the adequate strategy according to your financial situation. 

Leave a Comment or Answer a Question Below: Have you ever considered debt consolidation? If you’ve done it, what was your experience like? Did it help you get out of debt faster? Was it more convenient for you? What other advice would you give someone looking to get out of debt? 

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