5 Tips For Consolidating Your Debt

Posted on: 14 December 2015

Debt consolidation offers several benefits, especially if you are feeling overwhelmed by too many debt payments and out-of-control interest. When you consolidate your debt, you can group several smaller debts into one overall debt, allowing you to only make one payment per month and helping to save on interest. There is more than one way to consolidate debt, so you should consider your options carefully and choose the one that works best for you. Here are five tips to keep in mind when you consolidate your debt:

Check Your Credit Report

The first thing you should do when looking into debt consolidation is check your credit report. If you notice any inaccuracies or fraudulent activity, report it immediately and get it corrected by the credit bureaus. Mistakes on your credit report, especially inaccurate negative items, can lower your credit score significantly. The higher your credit score the more options you will have when it comes to debt consolidation, which is why this is such an important first step.

Apply for a Personal Loan

A great option for debt consolidation is to apply for a personal loan. You can apply through your bank or credit union, or apply for a personal loan online. Once approved and funded, personal loans are very flexible options that can be used for anything you want, including debt consolidation.

Your goal should be to take out a loan at a lower interest rate than what you are currently paying on your credit cards. Then, simply use the loan funds to pay off your credit cards and other high interest debt, and begin making  payments on the personal loan instead. This is an especially good option if you would like the ability to use some of the loan for things other than debt consolidation.

Consolidate to One Credit Card

If you have decent credit and are approved for a credit card with a high limit and low interest, this can be a great way to consolidate your debt. Simply transfer all your smaller balances to this one card and begin making payments on it. Some people do this on a regular basis in order to take advantage of zero percent interest offers that expire after a certain number of months.

Try Peer-to-Peer Lending

Peer-to-peer lending programs offer personal loans, except unlike traditional loans these are funded by individual investors instead of banks or other financial institutions. Peer-to-peer investing offers a higher interest rate than most savings accounts for investors, who are eager to lend you money in exchange for this interest.

For borrowers, peer-to-peer lending can be easier to be approved for than conventional loans. While peer-to-peer lenders will definitely look at your credit score and income, they may also be less rigid in their requirements and be open to extenuating circumstances that make you a less-than-perfect borrower on paper.

Sign Up for Debt Management

Debt management companies work with you to consolidate your debt into one payment which you pay to the company instead of your credit card companies. One potential drawback to this option is that debt management companies often require you to close all of your credit cards in order to participate in their program. If you'd prefer to keep a credit card open for emergencies this may not be the best option for you.

On the plus side, debt management companies can sometimes negotiate lower interest, more manageable payments, and possibly even settle with your debtors for less than you actually owe.

By consolidating your debt, soon you will have the peace of mind that comes from having fewer debt payments and less interest.