Young Asian woman is stressed and overthink by debt from many credit cards and bills.

How to Consolidate Debt

Learn how to get out of debt and consolidate your bills. Overcome the obstacles you face when you owe money to multiple lenders.

Many people get into debt due to overspending with credit cards, student loans, or major purchases and now the average American has $58,604 of debt. Debt keeps you feeling trapped in life and limits the choices that you have. It creates a mental and financial burden in your life with monthly payments and growing interest. Debt consolidation is a way to simplify the process of paying off debt and help you gain freedom from debt faster. 

What is debt?

Debt is defined as the amount of money that one borrows from another party. Individuals go into debt when they don’t have enough money for the purchases that they need to make. Individuals can go into debt when financing a home, getting money for their education, or purchasing a car. Sometimes people have medical emergencies that they can’t afford at the time and they will go into debt to essentially save their life.

Debt comes in the forms of mortgages, car loans, student loans, personal loans, and credit card balances that aren’t paid off monthly. Credit card balances that are paid off each month do not count as debt. 

How to consolidate and pay off debt

When you are in debt from multiple sources, it may be wise to consolidate the debt into one single payment. To do this you will need to take out a debt consolidation loan and use it to pay off the other debts. You can do this yourself or work with a credit counselor or loan officer to gather all your debts and combine them into one payment. Consolidating the debt makes it easier to remember the monthly payment and get a lower APR which can save you money. 

Credit Card Balance Transfers

You can transfer different credit card balances to one card with a 0% interest rate for a do-it-yourself type of consolidation. Credit cards offer balance transfers to gain new business and often offer a no-interest payment period of about a year. But to do this, your credit score usually needs to be at least 680 or higher for this strategy.  

This is a great option if you can plan on paying off your credit card balance within a year. It will simplify the process of getting out of debt and you may even earn travel or cashback bonuses in the process. The credit card that you must be approved for needs to have a high enough credit limit to handle all of the debt. The credit card company may also charge a fee of 3-5% on the debt that is transferred. If you can’t pay off the debt during the introductory period, the remaining balance will go back to the normal high-interest rates.

Debt Management Program

A debt management program aims to lower the interest rate on your credit card debt and helps give you a monthly payment that is affordable for you. Their programs are designed to help you eliminate the debt in 3-5 years. These programs are offered through nonprofit counseling agencies. The debt counselors evaluate your financial situation and offer advice on the best debt relief solution for you. 

The biggest advantage of this type of program is that the counselors have extensive knowledge and experience with lowering monthly payments. They provide you with a solution to pay off your debt that isn’t a loan. It also stops all the calls from collection agencies. The credit counselor can also provide you with information on how to avoid going into debt again. 

Personal consolidation loans

You can use an unsecured payday loan from an online lender to consolidate credit card debt. Ideally, you want to find a loan with a lower APR than you are paying on your credit cards. Online lenders will have you pre-qualify for a consolidation loan which will give you a preview of the loan terms and the rate before you apply. 

The advantage to a consolidation loan is that there is a fixed interest rate, so your monthly payments don’t change. You may be able to find low APRs and sometimes direct payment to creditors is offered. Unfortunately, they can be more difficult to obtain with bad credit and some loans will carry an origination fee. 

Managing finances during debt consolidation

Whether using a debt consolidation program, a personal loan, or a credit card transfer, you will want to stay on top of your finances to understand how much money you have coming in and going out. Thinkflow helps consumers take a proactive approach to their finances by analyzing your spending habits and helping you visualize your finances.  It enables you to determine how much money you can comfortably allocate to getting out of debt each month. You can also discover ways to earn extra money through the income helper which will alert you to potential sources of income that may allow you to pay off your debt faster. 

If you have done all that you can do to consolidate your debt and still find yourself in need of a short-term loan, consider an emergency installment loan from Jora Credit. Apply here today.

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