How Smart Is It to Consolidate Debt?
Consolidating debt can be a wise move if you’re looking to simplify your financial picture. By consolidating your debt, you’re rolling several accounts into one, meaning that you’ll be working to pay down your debt with one monthly payment. That can streamline your finances along with making it easier for you to stay current on payments.
Consolidation can also allow you to lower your interest rates on accounts and in some cases even reduce the principal amount due. It can ultimately help your credit rating as well since you’ll be getting current with outstanding debt and work toward paying it off more quickly.
How Can I Consolidate Debt?
You can consolidate credit card debt as well as overall debt, but whatever debt you’re trying to pay off, the first step is to figure out if debt consolidation is right for you. If your debt is too overwhelming, you may have difficulty qualifying for a loan that can truly help you.
However, if you decide that consolidating debt is the right path for you, the next step is to figure out the best path to take for your type of debt. If you’re looking to only consolidate credit card debt, that can be done by consolidating your accounts onto one lower-interest card. However, if you’re looking to consolidate several types of debt, it may be in your best interests to consult with a professional debt consolidation firm. When interviewing firms, be sure to ask for professional references and get independent reviews from clients before making your decision.
If your credit score is good, you may qualify for a debt consolidation loan that carries a lower interest rate on a fixed loan. If you’re simply consolidating credit card debt, you can get a lower interest rate by consolidating your balances on a low-interest card. If you’re consolidating overall debt, talk to your debt consolidation firm or your creditors about negotiating a lower interest rate with fixed payments. Often creditors will prefer to work with you on terms rather than write off the debt, so it never hurts to negotiate.
Can I Use My Mortgage to Consolidate My Debt?
You can use your mortgage to consolidate your debt by obtaining a home mortgage debt consolidation loan. This can either come in the form of a traditional loan or a line of credit, which is known as a home equity loan.
Using a home mortgage debt consolidation loan, also known as a mortgage refinance, can be a good idea if you’re planning to stay in your home for five or more years, and if you’re confident that you’ll be able to repay the loan. If you’re planning to sell your home in the next few years, the savings you may realize may not outweigh the upfront fees you’ll need to pay to obtain the loan. Furthermore, since you’re using your house as collateral for the loan, failure to repay it could mean losing that house.