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What to Know About Debt Consolidation

Posted by Advocate Debt Relief Team

5 months ago / May 18, 2022

Times are tough right now. Consumers are being hit with nasty inflation, high gas prices, and groceries are inching up by the minute. Small businesses are feeling the pinch now more than ever too. Good luck getting a backorder within the next six months as well. It kind of feels like economic chaos.

Piled on top of the looming challenges everyone is facing; outstanding debt will inevitably make matters worse. Payments to multiple lenders can have you feeling like you have dishes stacked so high they’re about to smash at any moment. Don’t wait until the last plate topples over. Explore your debt consolidation options.

Step One

Before you jump into any debt-relief options, take a moment to do a self-assessment. No matter what gets you out of debt trouble, if you don’t identify where you went awry with your spending habits, it’s a safe bet it’ll happen again.

Try to pinpoint outgoing money that isn’t necessary. Eating out, impulse buys (online purchases can be especially dangerous), and luxury items can all eat up valuable income. Go through bank statements for the last three months and average how much you’re spending on non-essentials. You might find enough to make the payments you’re missing.

Credit Card Balance Transfer

Multiple payments, various balances, and due dates at all ends of the calendar make anyone bonkers. Consolidating credit card payments is less hassle and more peace of mind. Another bonus is the possibility of saving on interest fees. As long as you have your spending under control going into a balance transfer, the typical 0% APR for the first year can give you a huge leg up when paying down the principal balance.

The other side of the coin comes in additional costs. First, you should consider the transfer fee. Most of them hover around 3% – 5% of the total amount transferred with a  minimum amount. Do the math to ensure you’re not paying more than you already shell out now.

Another downside is the credit necessary to be approved. Usually, it would help if you had a good to moderate credit score to qualify. Your credit score also determines the APR you’ll pay after that sweet 0% APR offer in the first year. Please pay close attention to the APR afterward; it can easily bite down on your ability to pay it off once and for good.

Debt Consolidation Loan

Another way to narrow those payments into one is a debt consolidation loan. This type of personal loan can lower your interest rate and streamline multiple costs. It can be a great option if you are determined to pay down debt once and for good. You’ll need a good credit score; it can significantly lower your debt interest and lock you into a sustainable repayment plan.

Similar to other debt consolidation options, if your spending remains out of control, this option could hurt more than help. It can be tempting to keep using credit cards because all that space is now free. Try to remember what got you there in the first place. It’ll save a lot more headaches down the line.

Home Equity Loan

In a home equity loan, you can borrow a sum of cash that is typically repaid in fixed installments over 5 – 30 years. Essentially, it’s one type of a second mortgage. The upside to this kind of loan is the fixed interest rate over the life of the loan, and the interest rate is traditionally lower. To top it off, interest payments can sometimes be tax-deductible. 

The downside is that your home is now collateral. Defaulting on the payments means your house is on the line. Be sure to factor in closing costs. Loans involving real estate can have closing costs from 2% to 5% of the loan amount. This second mortgage payment cuts into disposable income and a healthy month-to-month bottom line.

Consult a Professional

Due diligence is crucial when addressing any debt. Above all, make an honest effort to discover the root cause. Sometimes it’s as simple as being more mindful of when we use credit or cash. Other times it’s being cautious about what we’re spending money on. Regardless of the situation, finances can be stressful and complicated. If you’re overwhelmed, get a professional involved. Advocate Debt Relief can help you find suitable debt consolidation options. We’ll help you assess the situation by first aligning with your financial goals; then, we’ll carve a path forward with you.

Stop trying to balance too many payments each month. There is enough to worry about in the world right now, and you deserve to have a win. Take your first step towards financial freedom and talk to one of our analysts today.

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Filed Under: Debt Relief