If you’re reaching the point of having too many loans to keep track of and manage, having a debt consolidation plan can bring you some much-needed financial relief. Using a personal loan to roll all of your debts into one single loan with a lower interest rate has long been a common strategy to pay off debt, but this doesn’t necessarily mean it’s for everyone.

 In this article, we’re going to see how you can benefit from a debt consolidation plan and a few of the most popular programs available to help you stay on your feet.

Debt Consolidation: What You Need to Know

When it comes to debt management and staying on top of finances, debt consolidation is a popular buzzword you may have heard of, but what is it exactly and how can it help you? 

In short, debt consolidation is the process of paying off all your current debts with a brand new one. This leaves you with one, easy-to-manage monthly loan payment. Instead of having to juggle multiple lenders and payments, everything has been condensed to one single account.

Aside from simplifying your debt management, having a debt consolidation in place could allow you to pay less in the long-run by securing a lower interest rate than what you were paying on your other debts. It can even give your credit score a boost if you pay your debt right.

Debt Consolidation Plan: How You Can Benefit

Consolidating your debt can provide you with a greater peace of mind about your financial situation. Reducing the cost and amount of monthly payments can ease the immediate financial burden that debt causes and allow you to improve your overall financial situation.

A debt consolidation plan will also usually reduce your overall interest rate by a great deal, making it easier to meet your monthly payments. This can be incredibly helpful when you are struggling to meet your current payments and could potentially decrease what you end up paying in the end.

Just be sure that you don't let the relief that comes with consolidation translate into a false sense of security. It won't fix bad spending habits. Use it to your advantage, focus on paying off your debt, and don't use it as an excuse to dig yourself into a deeper hole.

It could also mean a prolonged length of payments, which might ultimately result in you paying more by the end of your loan's term. That might be better for you if you desperately need to reduce your monthly payment, but otherwise, you should make sure that reducing the cost of monthly payments won't result in a significantly higher final cost.

Different ways to consolidate debt

A few ways to consolidate your debt include a balance transfer credit card, personal loan, or a home equity line of credit (HELOC).

Balance Transfer

Balance transfer credit cards are a great debt consolidation plan for those with a good credit score. They work by moving your various debts onto a credit card account with a very low interest rate. You want to look for one that has a long introductory period and 0% APR for as long as possible. The better your credit score, the more control you'll have over these two factors.

Personal Loan

A personal loan is another option that works fairly similarly. It works how you would expect it to. You take out a personal loan that is equal to the number of your various debts, pay those debts back using the loan, and then focus on paying back the single personal loan. Having good credit means you can get a personal loan with lower interest, so this method is better suited for those with a higher credit score.

Home Equity Line of Credit (HELOC)

A HELOC is a loan of sorts that allows you to borrow amounts as you need them. You can borrow these amounts for a set period of time known as the "draw period". After that time, you will typically be required to start paying back the loan. You can also pay back what you're borrowing as you're able, which will help keep future payments lower. Just be sure that you're aware of any fees that may be associated with this kind of debt consolidation plan.

Conclusion 

Debt can be a stressful financial burden, especially when it's scattered across various entities and terms. Fees, interest rates, and payments can quickly add up, making it hard to properly manage the situation.

Having the proper debt consolidation plan in place can prove to be a great way to simplify the process of repaying your debt, so long as you are sure to do it responsibly and consider which route is right for you.

Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances.  The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. The information or opinions contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.