Should I consolidate?
You may have a budget that you stick to, as well as a decent income, yet you still find yourself stretched uncomfortably thin every month. You’d like to pay more towards reducing your debt load, but you find that you simply can’t.
Have you thought about debt consolidation?
Debt consolidation essentially means that you combine all of your debts together so that you are making a single payment.
This is generally a very effective way to pay down your debts because you are essentially able to do more with less- in the sense that you are paying less out towards towards interest.
Visit your lender
Your bank or credit union should be your first stop to see if they can assist you. Essentially, they will combine all of your debts (usually credit cards) into a single installment loan, which may very well be at a lower interest rate.
Installment loans are great tools if your aim is to reduce debt. The difference is that with installment credit, once you pay it down, it’s gone. Credit cards give you the opportunity to rack that debt back up again, creating a potentially slippery credit slope.
Be prepared to provide proof of your income as well as up-to-date credit statements.
Maybe you’d prefer to go the DIY route with debt consolidation? If you have room on one of your lower interest- bearing cards, pay out the other balances.
Make sure that you cut up the cards that you’ve paid out, and that you close the accounts. It will defeat the purpose of your debt consolidation if you run them back up again!
For homeowners with equity in their homes, refinancing your mortgage to pay out higher interest debts can be a good option as well. Typically, mortgage loans are at a far lower interest rate.
You can expect to incur some extra costs, like interest penalties for breaking your mortgage and possibly appraisal fees as well.