In 2018, over 63 percent of Americans have consumer debt, in the form of credit cards, auto loans, medical bills and other types of unsecured debts.
As of September, the total U.S. consumer debt rose to $3.789 trillion.
With numbers like that, it’s not hard to understand why people can be so stressed about money.
Americans have a lot of personal debt, spread out over a number of accounts, all with different due dates, interest rates, penalties and ways of paying.
If you find yourself with a pile of bills and no strategy for paying them down, debt consolidation could be a solution for easing this mental and emotional burden, as well as more efficiently paying off your outstanding balances.
Debt consolidation is any method of combining multiple unsecured debts into one bill, and therefore one payment.
This can be done in a number of ways, including credit card balance transfers and debt settlements.
Most commonly, debt consolidation is accomplished by taking out a low APR installment loan to cover the total cost of your outstanding debt and using it to pay off the individual amounts.
The borrower will then be responsible for just paying one bill.
Any type of unsecured personal debt can be consolidated. These debts include:
Debt consolidation loans streamline the bill payment process.
Paying one bill at the same time each month will always be easier than paying multiple creditors at different times of the month.
This simplicity has benefits beyond less stress.
When people have just one bill to look at, it’s also easier to see the progress their payments are making in lowering the total outstanding amount, which can be a huge inspiration to keep up the good work.
Debt consolidation loans can save you money.
By combining all your outstanding bills into one lump sum, you can actually benefit as you lower your principal balance.
Debt consolidation loans could improve your credit score.
One factor that impacts your credit score is your debt to credit ratio.
This is a measure of the total availability of revolving credit you have (i.e. credit cards) versus the amount that they are utilized.
Installment loans are completely exempt from this equation.
If you have a lot of credit card debt, when you pay off your various balances with a debt consolidation loan, you will drastically lower your debt to credit ratio, which could have a positive effect on your credit score.
Debt consolidation loans are not ideal for everyone.
In general, debt consolidation loans offer a lower interest rate than high APR credit cards and other types of revolving debt.
For those with bad credit, they might only qualify for debt consolidation loans with an interest rate more comparable to the credit cards they’re trying to pay off.
It should be pointed out, however, that if you’re able to improve your credit score by paying off your credit card debt with an installment loan, you would be able to turn around and apply for another debt consolidation loan at a lower APR.
They cost money.
Like most personal loans, debt consolidation loans have a loan originator fee that is levied just for taking out the loan.
You need to avoid additional penalties.
In many cases, missing payments or paying late on a debt consolidation loan has a harsher impact on your credit score, and with higher penalty fees.
You need to watch your spending habits.
By making more credit available to you, make sure you don’t continue following the patterns that got you into debt in the first place.
Otherwise, you could end up with more credit card debt to pay off on top of your new debt consolidation loan.
No matter how many different debts you have to consolidate, the process for doing it is simpler than you think. You need to:
LendGenius makes step 3 easy by connecting you with a potential lender offering debt consolidation loans for many types of borrowers.