There’s no one-size-fits-all solution to paying off debt. No matter what type of debt you have or how you accumulated it, establishing financial freedom requires finding a strategy that works for your unique situation. If you’re ready to get your life back on track, having debt consolidation explained in detail could help you figure out if debt consolidation is the best solution.
Debt Consolidation Explained
If you are saddled with unwieldy debt from multiple sources, you’ve probably wondered if debt consolidation could be the answer. This guide could help you find the answer.
How Does Debt Consolidation Work?
Debt consolidation involves rolling multiple debts into a single balance and monthly payment. This can be a big relief because it makes debt more manageable and less complex while also lowering the total amount that you have to pay.
The two most common types of debt consolidation are balance transfer and debt consolidation loans:
- Balance Transfer: A balance transfer involves transferring all of your credit card balances to a new or existing credit card with a lower interest rate. In the long term, this reduces the amount you pay by decreasing the interest you pay over time. If you go for a 0% introductory rate, you can use the introductory period to make great strides toward paying off your debt. However, you will likely need good to excellent credit to qualify for such a card. You may also have to pay fees to transfer your balances, and the interest rate may jump drastically after the introductory period.
- Debt Consolidation Loan: A debt consolidation loan involves taking out a loan to pay off your credit balances and making monthly payments on the loan over a set term. This can be a great option for people that aren’t able to take advantage of a balance transfer, as the threshold for approval is a lot lower. While borrowers with better credit scores qualify for the lowest interest rates, most consolidation loans will offer a more favorable interest rate than you are currently paying on your credit cards.
Will Debt Consolidation Save Me Money?
Because debt consolidation reduces the amount of interest you pay over time, you will save money in the long run. In addition to the long-term savings, consolidation can mean lower monthly payments, leaving you with more money in your pocket.
What’s the Difference Between Debt Consolidation and Debt Resolution?
Debt resolution is a different process than debt consolidation. While debt consolidation involves taking out a lower interest loan to pay off all of your debt, debt resolution involves working with creditors to settle for a lower, lump-sum payoff.
But it’s not an either/or situation. Debt resolution and debt consolidation can work hand-in-hand, allowing you to benefit from both approaches. This can prevent you from having to resort to other options, such as bankruptcy, that take significantly longer and leave a much larger mark on your future creditworthiness.
Can I Trust Debt Relief Companies?
It depends. A good debt relief company will present all of your options to help you create a comprehensive plan for long-term financial health. But while there are debt consolidation companies that have your best interest in mind, there are others that make lofty promises to take advantage of you.
It’s important to trust your intuition and do your research. When assessing debt relief companies, check out their reviews on independent watchdog resources, such as the Better Business Bureau, and make sure they’re accredited by the American Association for Debt Resolution (AADR).
While having debt consolidation explained to you may have helped you decide if debt consolidation is the best way to pull yourself out of debt, it’s critical to ensure that you partner with the right debt relief company. Their support can have huge benefits for your future.
The Right Debt Relief Partner
At National Debt Relief, integrity is at the heart of everything we do. Our team of experienced advisors works with you to forge a path toward a debt-free future and guides you every step of the way.
Founded in 2009, National Debt Relief has helped over 450,000 Americans like you pay off their debt and create financial success. We’ll help you create a realistic and powerful debt resolution plan that works for your unique financial situation—whether that includes debt consolidation or not. With an A+ rating from the Better Business Bureau and glowing reviews from our clients, we’re a partner that you can trust and rely on.