by Maurie Backman | Oct. 15, 2020
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Debt consolidation could make your outstanding obligations more manageable. Here's what you need to know.
A lot of people had debt before the coronavirus pandemic began. But at this stage of the game, it's fair to assume there are many folks who've had no choice but to add to their debt due to the ongoing crisis.
If you're carrying a balance on multiple credit cards, or have a few different loans outstanding, you may be wondering if debt consolidation is a smart move. The quick answer? It could be.
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Debt consolidation is the process of converting different debts into a single loan. You make one single payment each month rather than keeping track of multiple payments. Debt consolidation could also make your debt more affordable if you're able to snag a lower interest rate.
You could consolidate your debt in a few different ways:
Each of these options has its pros and cons. With a balance transfer card, you might find a 0% introductory APR that does not charge interest for a set period of time, which can be as long as 15 to 18 months. But you need to factor in the balance transfer fee, and know your rate could skyrocket once that initial period expires. You'll also need to be careful not to charge new expenses and add to your debt, otherwise you will dig yourself deeper into a hole.
A personal loan can be an affordable way to consolidate debt, especially if you qualify for a low interest rate. Be aware that if your credit score isn't great, the rate you pay could be close to that of a credit card (though generally not quite as high). Check out some of the top debt consolidation loans to see if the terms work for you.
A home equity loan is a more affordable way to consolidate debt from an interest perspective. But it's off the table if you don't own a home or have equity in one. And if you fall behind on those loan payments, you'll risk losing your home. The same holds true for a cash-out refinance.
If you're struggling to make ends meet during the pandemic, debt consolidation could lower your monthly payments. And these days, mortgage rates are extremely low, so doing a cash-out refinance may be more affordable. Also, a lot of homes have risen in value lately due to the state of the housing market, so you may find it easier to squeeze equity out of your property right now. Finally, a home equity loan doesn't hinge on you having good credit, so even if your score needs work, it's still an option.
Consolidating your debt could also make it easier to manage your debt at a time when you may have other things on your mind. Many people are guiding children through remote learning or caring for older family members who may be homebound. Plus, if you've lost your job or seen your hours reduced, you may be spending all your spare time marketing yourself to employers.
For all of these reasons, debt consolidation could be a smart idea. Just be sure to research all your options carefully before diving in. Applying for a balance transfer credit card, for example, may seem like the best or easiest choice initially, but if you own property, a home equity loan could make more sense. Weigh the pros and cons of each route so your efforts to make your debt more manageable really pay off.
If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read The Ascent's full review for free and apply in just 2 minutes.
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