The holiday season has come and gone. While you can’t put a price tag on the memories made, you may now be feeling the burden of the debt you accrued in the process. If you’re feeling a bit anxious about paying back your holiday debt, there’s a relatively easy solution – debt consolidation.
Consolidating debt may sound complicated, and it may sound more intimidating than slowly paying down your current balance. However, the process is a lot easier than you may think and can help you save a significant amount of money over the long term. It’s a Win-Win!
What is Debt Consolidation?
Debt consolidation is simply the process of transferring one or multiple credit card balances or loans to either another credit card or loan.
By moving your current debt from multiple credit lines to just one new account (a new credit card, personal loan, or even home equity line of credit), you can simplify your bills. Instead of paying three or four credit cards each month, you’ll now only have one account to manage monthly. Furthermore, you can save a large amount of money by consolidating debt!
Why You Should Consolidate Debt:
There are many benefits of consolidating debt, including:
Save on Interest. If you have several high-interest credit cards, transferring all outstanding balances to a lower rate card or loan will help you save a significant amount of money each month in interest.
It’s important to note that some credit cards may offer a special introductory interest rate. While this may be tempting to take advantage of, be sure to read the fine print so you understand exactly when the rate will increase and by how much. If you cannot pay off the debt during the introductory period, you may be stuck paying a higher rate than you initially thought. When consolidating debt, always look for the credit card with the lowest interest rate and from an institution you trust to have your best interests at heart.
Easier Money Management. If you currently have several different credit cards or short-term loans, consolidating them all into a single new credit card or loan is a wise move. Instead of keeping up with a handful of due dates and payment amounts, you’ll only have to make one payment each month. Plus, instead of paying several different interest rates each month, you’re only paying one interest rate, resulting in significant savings.
Quicker Payoff. When managing various credit card debts with high balances, it’s easy to fall into the trap of only making your minimum monthly payments. By simply making the minimum payment, you are only paying the interest accrued on the card and not the principal. Therefore, you’ll never really see your balance go down.
When you consolidate all your current debts into a personal loan from the credit union, you’ll have a set monthly payment amount (just like your car loan payment). This strategy helps you pay off debt quicker and reduce the amount of interest you pay over the long term.
Boost Your Credit Score. If your credit score took a hit due to your holiday spending, consolidating your debt could help it get back on track. This is especially true if you use a personal loan to consolidate your debt because you will be decreasing your credit utilization ratio (CUR).
Your credit utilization ratio is a formula that lenders use to see how well you can manage debt. It shows the total amount of what you owe on your credit cards compared to your total available credit.
You can calculate this ratio by taking all of your outstanding credit card balances and dividing them by your total credit card limits, and then multiplying that number by 100 to get a percentage. Lenders want this figure to remain below 25%. As you pay down your debt, this ratio will also go down, causing your credit score to increase. Essentially, you could begin to see a boost to your score in just a few months.
Decrease Stress. Large amounts of debt without a plan of paying it off can add a significant amount of stress to your life. When you consolidate your debt, you’re taking control of your finances and bringing some organization to your life, which will help to reduce your financial anxiety.
We’re Here to Help!
High amounts of debt can adversely affect your overall financial and mental health. Debt consolidation can be a great option to get your finances under control and ultimately pay off your debt quicker while saving you a significant amount of money.
If you are considering consolidating your debt into a fixed-rate personal loan or lower-interest credit card but have additional questions, we’re ready to help.
Please stop by any of our convenient branch locations or call (888) 777-9982 today. Our skilled professionals can help assess your current credit lines and owed debt and help you form a plan to pay the debt off with less stress.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.