Are you feeling overwhelmed by high-interest debt, such as credit card debt? One source of relief to consider is debt consolidation. When you consolidate debt, you roll your existing debt into a single payment, preferably with a lower monthly interest rate. Debt consolidation works by taking out one larger loan to cover and combine your smaller sources of debt. For example, if you have a significant amount of debt across multiple credit cards, you can consolidate the debt into one single new loan or line of credit.
While debt consolidation isn't a one-size-fits-all solution, it may be a good idea depending on your personal situation. Here are a few indicators that debt consolidation could be right for you.
You have good credit
If you already have a good credit score, you may qualify for a low rate loan or low rate credit card that can be used to consolidate multiple sources of debt. Rolling multiple debts into a lower rate loan can help you save more money on monthly payments and overall interest over the term of the loan. Consolidating debt may also help to improve your credit score if it enables you to make on-time payments or lowers your credit card balances.
You'll save significantly by consolidating
Consolidating several debts into a single loan is an attractive option because it can help you pay off debts sooner, make monthly payments more manageable and convenient, and help reduce the cost of paying multiple interest rates each month. As a general rule of thumb, you should only consolidate when doing so will save you at least $500 over the life of the loans in either interest or total payments.
You have a plan to prevent creating future debt
At the end of the day, it's important to remember that consolidation isn't a magic bullet for debt problems. Debt consolidation works best when it is combined with a solid repayment plan and a commitment to preventing running up more debt. If you're struggling with debt, don't be afraid to seek help. Through our partnership with GreenPath Financial Wellness, Wright-Patt Credit Union is here to help in a caring, compassionate and confidential way. Together, we'll create a plan to reduce your debt and ensure you have the tools and support to meet your financial goals. Contact us to schedule an appointment or ask questions today.