FINANCIAL EDUCATION AT A GLANCE
Debt Consolidation
| If you have a lot of debt, you’re not alone. Today, more and more Americans are burdened with credit card and loan payments. So whether you are trying to improve your money management, having difficulty making ends meet, want to lower your monthly loan payments, or just can’t seem to keep up with all of your credit card bills, you may be looking for a way to make debt repayment easier. Debt consolidation may be the answer.
What is debt consolidation? Debt consolidation is when you roll all of your smaller individual debts into one large payment, usually with a shorter term and a lower interest rate. This allows you to write one check for a payment instead of many, while lowering your total monthly payments. |
How do you consolidate your debts?
There are many ways to consolidate your debts. One way is to transfer them to a credit card with a lower interest rate. Most credit card companies allow you to transfer balances by providing them with information, such as the issuing bank, account number, and approximate balance. Or, your credit card company may send you convenience checks that you can use to pay off your old balances. Keep in mind, however, that there is usually a fee for this type of transaction, and the lower rate may last only for a certain period of time (e.g., six months). Another option is to obtain a home equity loan. Most banks and mortgage companies offer home equity loans. You’ll need to fill out an application and demonstrate to the lender that you’ll be able to make regular monthly payments. Your home will |
then be appraised to determine the amount of your equity. Typically, you can borrow an amount equal to 80 percent of the value of the equity in your home. Interest rates and terms for home equity loans vary, so you should shop around and compare lenders.
Some lenders offer loans specifically designed for debt consolidation. Again, you’ll need to fill out an application and demonstrate to the lender that you’ll be able to make regular monthly payments. Keep in mind, however, that these loans usually come with higher interest rates than home equity loans and, depending on the amount you borrow, may require collateral on the loan (e.g., your car or bank account) interest rates on your individual loans. This allows you not only to save money but also to lower your payment. |
| Credit and Debt Assistance Center of America is a licensed, Non-Profit Credit Counseling Organization
Credit and Debt Assistance Center of America is identified under section 501(a) of the Internal Revenue Code as a Non-Profit Organization described in section 501(C)(3). |
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