How To Know When It’s The Right Time To Consolidate Your Debt

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Getting out of debt is usually a much harder thing to do than getting into debt, especially if you end up with a large balance and a high interest rate which makes it feel like it’ll take over a decade to pay off. As a result, many people turn to debt consolidation loans to help pay off their balance faster.

There are many advantages – as well as a few caveats – to keep in mind if you’re considering consolidating your debt. Of course, everyone’s situation is different so you should always double check with a financial advisor to ensure your unique personal needs are being met before making your next move.

Below, Select breaks down a few circumstances that indicate when consolidating your debt would be a good step for you to take.

You have multiple monthly debt payments

Consolidation quite literally means combining several things into a single more coherent whole – debt consolidation, therefore, is the process of taking multiple monthly debt payments and replacing them with one monthly payment.

If you have several major bills that need to be paid monthly, consider this the first sign that debt consolidation could be a good next step for you. Consolidating multiple payments into just one can help you feel more financially organized and less stressed about having to divvy up your paycheck to pay them off.

Let’s say you take out a debt consolidation loan – that means you would apply for a specific amount of money and once approved, the lender would send the funds to your creditors and pay off those balances. In other words, the only monthly payment you’d be making is for the loan itself.

Some personal loan lenders, like Payoff, for example, offer personal loans as low as $ 5,000 and as high as $ 40,000 that are meant exclusively for consolidating your debt.

Other lenders make the debt consolidation process as easy as possible by allowing you to send the funds directly to your credit card companies – most personal loan lenders will instead deposit the funds into your checking account so you can use the money as needed.

Marcus by Goldman Sachs personal loans, for instance, let borrowers send funds directly to as many as 10 creditors for debt consolidation. You’ll just need to provide the creditors’ names, addresses, account numbers and the amount of money you’d like sent to each, and from there, you’d only have to make monthly payments toward the debt consolidation loan.

Payoff Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation / refinancing

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

    0% to 5% (based on credit score and application)

  • Early payoff penalty

  • Late fee

    5% of monthly payment amount or $ 15, whichever is greater (with 15-day grace period)

Marcus by Goldman Sachs Personal Loans

  • Annual Percentage Rate (APR)

    6.99% to 19.99% APR when you sign up for autopay

  • Loan purpose

    Debt consolidation, home improvement, wedding, moving and relocation or vacation

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

Your debts carry high interest rates

High interest rates can make it difficult for you to finally be debt-free, especially if you have several payments to make and can only afford to pay the minimum balance each month. Because that minimum payment is most likely going toward part of the interest – and not the principal – you’re really just racking up more and more interest charges each month.

One major advantage of debt consolidation is the potential to receive a lower interest rate, which may help you save you hundreds or even thousands of dollars in the long run.

While the new interest rate you receive may not always be drastically lower than your current rate, some savings are still better than none at all. A small percentage change coupled with only having to make one monthly payment can help you save money and feel like you’re a little more in control of your finances.

If you’re afraid you will not qualify for a low enough interest rate after consolidating your debt, you might instead want to consider using a 0% APR balance transfer card, which would allow you to transfer the balance of one or more credit cards that do have high interest rates onto one credit card with an introductory period where no interest is charged. Most balance transfer cards will charge a fee for each transfer, however.

From there, the goal is to pay down as much of your balance as possible since you will not have to worry about interest charges building up during that introductory period. The Citi® Double Cash Card allows you to complete a balance transfer from the date of first transfer and make monthly payments at an introductory 0% APR for the first 18 months (14.24% – 24.24% APR variable after). Alternatively, the Citi Simplicity® Card lets you make payments at 0% interest with an intro APR for 21 months after you complete your first balance transfer (14.99% – 24.99% variable after). For both cards, balance transfers must be completed within 4 months of account opening.

Citi® Double Cash Card

  • Rewards

    2% cash back: 1% on all eligible purchases and an additional 1% after you pay your credit card bill

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% for the first 18 months on balance transfers; N / A for purchases

  • Regular APR

    14.24% – 24.24% variable on purchases and balance transfers

  • Balance transfer fee

    For balance transfers completed within 4 months of account opening, an intro balance transfer fee of 3% of each transfer ($ 5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($ 5 minimum) applies

  • Foreign transaction fee

  • Credit needed

Citi Simplicity® Card

  • Rewards

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

  • Balance transfer fee

    5% of each balance transfer; $ 5 minimum

  • Foreign transaction fee

  • Credit needed

You already have a good credit score

Experian Dark Web Scan + Credit Monitoring

On Experian’s secure site

  • Cost

  • Credit bureaus monitored

  • Credit scoring model used

  • Dark web scan

  • Identity insurance

You have a plan to stay out of debt

Editorial Note: Opinions, analyzes, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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