How to Consolidate Debt: The Only Guide You Need

In America, having $90,000 in debt seems to be the norm.

Thankfully, debt consolidation can help you put an end to the vicious cycle of always owing more. If you consolidate your debts, you can reduce monthly payments and save money on interest rates because it is cheaper to pay off everything at once. You will also have more time to focus on other goals in life instead of constantly worrying about how much money you owe.

You’ll be happy to know there are many options available for debt consolidation Read on to learn how to consolidate debt, the right way.

Make a List of Debts

The first thing you’ll want to do is to make a list of everything that you have. Get out your most recent statements from each creditor. Write down the total of what you owe.

Next, get the loan details. How long the loan will last? How much it cost in interest per year? How many payments there are left and how big they are? Answer all of these questions completely before moving on.

Identifying Causes of Debt

Once you’ve finished this task, add up the numbers. Where do they come up short? Write down the total amount that doesn’t match what’s on your statements; this is where all your extra cash will go.

Next, when it comes to learning how to consolidate debt, you’ll need to know the facts about interest. Go ahead and compile a list of how much interest each individual debt is costing. If you currently have a student loan, you can compare student loan refinancing rates. By refinancing you may be able to get a lower interest rate and save yourself some money each month.

Divide the annual interest rate by the number of payments. These are your “sunk costs” – how much you’ve already spent on interest. Include this amount with how much debt you have and how much longer you’ll be paying for it.

Now go back to those original statements, which will allow you to see how close each account is to being paid off fully (called a zero balance). Write down how many more payments it will take until that creditor is cleared out, along with how much extra money you have per month.

After all these numbers are added up, subtract them from how much free cash you came up with earlier. The final number is how long it will take before all your debts are cleared out entirely. Make sure to write this date down in your journal; you are how much closer you’ll be to debt freedom.

Look For the Best Interest Rate

After creating a list of all your debts and deciding the best repayment plan, you can start the consolidation process. To consolidate your debt, look for debt consolidation loans that have the best interest rates. If you don’t take your time to thoroughly research competitive interest rates, you could wind up making your financial situation worse instead of better.

One of the best ways to determine if a company is offering you a fair interest rate is by shopping around. Start by looking for companies that offer to consolidate your debt into a lower-interest loan or credit card (with better terms). These options were made to help people like you if you are in over your head with how much debt you have.

Once you’ve exhausted this route and cannot get any better interest rates, you are free to look into other options such as loans from family or friends, home equity loans, etc.

One of the most common questions people ask when consolidating debt is how much do I put down? The answer is how much can you afford to pay off in a month or two, as that will help you lower how much interest you will have to pay back over time.

If it’s not a lot each month, make sure you contact your creditors to tell them how long it will take for you to clear out everything and how they should proceed. It may be beneficial to switch to an 0% APR card so there are no fees associated with opening up new accounts.

Types of Debt Consolidation Loans

You’ll be happy to know there’s more than one type of consolidation loan you can apply for. Some of them are easier to qualify for but may come with higher interest rates, while others are harder to get.

Consolidating Debt With Cash Out Loans

If you own your own home or have a decent amount of equity in it, you can consider paying down all your debt by refinancing into a lower-rate loan. This option is only available if your current house value is worth enough.

The difference between how much money you’re currently borrowing, and how much you could refinance for, would be equal to or greater than how much extra cash you’d have after clearing out your debt. The process is pretty simple because most mortgage lenders will set up this arrangement automatically.

Mortgage lenders are especially happy to help when they find out how much you would save by refinancing. This option is ideal for people with higher interest rates because the lender will not only lower how much money you’re borrowing, but they’ll also give you extra cash to pay off your debts.

Another plus is that there are no setup or closing fees, so the sooner you make the leap the quicker it will be until all your debt is cleared out. A down payment may still be required in some cases depending on how much equity you have and how much of a loan amount they want to insure.

Balance Transfer Card

Moving on, you can also look into opening up a balance transfer card for consolidating your debt. What will a look balance transfer card do for your finances?

Instead of paying off each individual debt, you’ll make monthly payments that will be transferred to a new card. This means the lender will pay off how much of your bill you owe and this amount owed is how much interest you’ll have to pay back over time.

Try to aim for cards that don’t charge an introductory period. These options will help how much you pay in interest over time if how much you can afford each month is not a lot.

When is it a bad idea to use a balance transfer card? It may not be the best route to go if you don’t have a lot of debt. Another bad situation that can result from these cards is varying interest rates. If you’re not careful, you could wind up signing up for more interest instead of less!

Know-How to Consolidate Debt

Learning how to consolidate debt isn’t something that happens overnight. However, with a little research and patience, you’ll have the financial freedom you deserve.

To make this process easier on yourself, start by making a list of all your debts and then decide how much money each month you want to put towards paying them off. From there, take some time to explore your various consolidation options before deciding what’s right for you! More advice, read another guide.


Darsh is a blogger and previous owner of this website.

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