Posted By Jessica Weisman-Pitts
Posted on May 2, 2023
Are you tired of making minimum monthly payments on credit card balances that never seem to go down? Most people think debt consolidation is getting a loan to pay off those cards. That’s one way to do it, but there are other debt consolidation techniques that may be a better fit for your situation. The following steps can help you find out which is best for you.
Step 1: Add up all your debt
First, add up your total debt so you know how much it will take to pay it all off. Then, add up your monthly payments on that debt. Both numbers are important in the debt consolidation process. Do the math and then put the calculations aside for use when you compare your options in the last step in this process.
Step 2: Create an income/expense budget, excluding debt
Add up all your expenses. Start with the essential items like rent, mortgage, utilities, fuel, and food. List non-essential items in a separate section because you might be able to eliminate some of them. Examples are expensive cable and phone packages, takeout food, and excessive entertainment expenses. Finish this step by adding up all your income.
Step #3: Check your credit score
Lenders offering debt consolidation loans will check your credit score as part of their qualification criteria. Avoid surprises by researching this on your own. Credit scores can be obtained by going to FreeCreditScore.com, a service offered by Experian. You may also be able to see your credit score when you check your monthly credit card statement online or use your bank’s mobile app.
Step 4: Contact your bank
Contact the bank where you have your checking and savings accounts to find out if they offer debt consolidation loans. Ask about rates and available loan terms. Take advantage if they offer pre-screening offers for loans, but don’t fill out a loan application just yet. At this stage, you’re just gathering information. Submitting a final application will affect your credit score, so it’s best to wait until you decide which loan is best for you.
Step 5: Search for online lenders
Once you have your bank’s rates and terms, search for online lenders and follow the same steps. Find out what they have to offer, and fill out some pre-screening applications that initiate a “soft inquiry” to determine eligibility. This will not affect your credit score. Soft inquiries tell you generally what the lender can offer. Write that information down to compare it with your bank’s loan offer.
Step 6: Search for balance transfer credit cards
Loans aren’t the only way to consolidate debt. Several credit card companies offer low- or zero-interest balance transfer offers with their cards that you can use to consolidate your balances with other credit card issuers. These are often limited-time agreements and are typically accompanied with a percentage-based or flat transaction fee.
Remember that you will need to pay off the transferred balance within six months to a year, at which point the remaining balance due will be subject to a significantly higher interest rate. Weigh this option against other loan options.
Step 7: Compare your options and apply
You should now have a few debt consolidation options to compare. Look at interest rates, how long the repayment period, i.e., the term, is for each loan, the monthly payment obligations, and the total amount you’ll need to pay to be debt free. Make sure you also compare those numbers with the amounts you came up with in Step 1 and check your income from Step 2 to confirm you can afford to do this. When you’re done comparing, choose an option and submit your application.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of [publisher] or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
Sources:
https://www.forbes.com/advisor/personal-loans/pros-and-cons-of-debt-consolidation/
https://www.bankrate.com/loans/personal-loans/what-is-debt-consolidation/
