Will Debt Consolidation help your goals?
If you have multiple debts and multiple loans with varying payments, it can become overwhelming trying to manage them all. Debt consolidation, sometimes called debt restructuring, can simplify your debt repayment strategy. It involves taking a single loan and using it to pay all your other loans and debts, leaving you with just one monthly payment.
This seemingly makes it easier to play off one creditor instead of multiple. You can accomplish this by transferring multiple credit card debts to one credit card with a lower interest rate, taking out a home equity loan or a home equity line of credit, tapping into your retirement, or taking out a personal loan.
Debt Consolidation Pros
- If you have high interest rates on a credit card or installment loan, consolidating to a lower rate will help to save you money. If you are looking transfer your balance to a lower rate credit card, look for a card with no balance transfer fee.
- Consolidating into one monthly payment will make bill paying much easier and more convenient (and may even help you eliminate late fees).
- If you have been struggling to make your monthly payments, consolidating may be a great way to reduce your monthly payments with your lower rate.
Debt Consolidation Cons
- You may have to pay exit fees to get out of existing loans. (Check with your current lenders.)
Check your lenders rates before making the switch. Will the low rate for your new debt consolidated loan be permanent or temporary? If the low rate is temporary, take advantage of it. Devise a plan on who you will tackle your high debt balance to take advantage of the lower interest rate. Need help making the right decision when it comes to your debt? Members can meet with one of our Certified Credit Union Financial Councilors at no cost to create a plan on how to reduce your debt.
Debt Consolidation FAQ:
Will consolidating credit lowers your credit score?
Consolidating your credit debt will lower your credit score temporarily due to a credit check, but will increase it in the long term after making multiple payments. Because payment history makes up 35% of a credit score, the long term benefits of manageable payments will greatly outweigh the temporary setback. You can learn more in Building Credit 101.
Can I consolidate my debt with a bad credit score?
The rate you receive for a loan being used for debt consolidation will vary depending on your credit score. Check your offered rate before consolidating. In the case of a balance transfer offer, credit unions and banks will typically offer a fixed percent rate for a limited time regardless of credit score.
Remember that debt consolidation doesn’t get you out of debt. You still have to pay what you owe. Your main goal should be changing the behaviors that got you into debt in the first place. Debt consolidation along with some budget work could be a good way to get you on the right path. Talk to us today to learn more!
What is the difference between debt consolidation and debt settlement?
Debt consolidation and debt settlement are not the same service. A debt settlement company will work with creditors on your behalf to negotiate a plan to settle and lower your debt. There is usually a cost for the services rendered from a debt settlement company. Debt settlement is not offered at First Commonwealth. For more information on debt consolidation vs debt settlement, visit FCFCUWellness.org.