Debt consolidation is a method to collect multiple debt accounts and reduce them to one payment instead of managing multiple payments throughout the month. Debt consolidation can be conducted through a bank, student loan provider or credit card company. The particular method that will work best for you depends on the amount and types of debt you have, but overall, it is an effective form of relief.
What are the benefits of debt consolidation?
Debt consolidation can provide you with a lower overall interest rate on your debt. If you have several accounts that are three or four years old, you can use debt consolidation to close those accounts. This process will reduce the burden of future interest payments. Additionally, if you have negative marks on your credit report due to late payment, consolidation can improve your credit report over time. Your monthly payments are reducing during consolidation as they are reconfigured to consider your total debt. Consolidation could also increase the time you have to pay off your debt.
If you have multiple federal student loans, you can combine all your loans with the added benefit of receiving a lower interest rate. You can pay your student loans back based on your income or a time-restricted period. Unique to student loan debt is a program that allows you to consolidate and make 120 on-time payments, after which the rest of your debt is forgiven.
How can I consolidate my debt?
First, identify what type of debt is the largest contributor to your debt burden. If this is credit card debt and it is spread across multiple cards, you can find other credit cards that will allow you to pay off your balance and use the new card to pay off the debt over time. If you have a car loan, you may be able to re-finance your car loan and get a better interest rate with a different bank or lender. Also, for student loans, going through your federal loan lender will give you the best options for repayment and consolidation.