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What is Debt Consolidation? and should I consolidate?

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What is Debt Consolidation? and do I need to consolidate?
Debt consolidation rolls multiple debts into a single payment. It is a great option if you are eligible for a low enough interest rate.
Written by Amrita Jayakumar Writer The Washington Post Amrita Jayakumar is a former special assignments reporter for NerdWallet. She also published a syndicated article on money and millennials, and focused on personal loans and consumer credit and debt. In the past, she worked as a reporter at The Washington Post. Her work has appeared in newspapers such as the Miami Herald and USAToday. Amrita has a master's diploma in journalism from The University ofMissouri.





Nov 30, 2022


Edited by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years with The Oregonian in Portland in roles including copy desk chief and team director of design and editing. Prior experience includes news and copy editing for several Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in mass communication and journalism in the University of Iowa.







A majority of the products featured here are from our partners who compensate us. This influences which products we review and where and how the product is featured on the page. However, it does not affect our assessments. Our opinions are our own. Here is a list of and .



Debt consolidation consolidates several debts, typically high interest debts like credit card debt in one payment. Debt consolidation could be a good idea for you if it is possible to get a lower interest rate. It will also help reduce your total debt and organize it so that you are able to pay it off quicker.
If you're dealing with an amount that is manageable and want to organize multiple bills with different interest rates, payments and due dates Debt consolidation is an effective strategy that you can do by yourself.
Important takeaways
How do you consolidate debt
There are two ways to consolidate debt, both of which combine your debt payments in one bill each month.
You can transfer all of your debts to this card and then pay the balance in full during the promotional period. You will likely need good or excellent credit (690 or higher) to qualify.
Choose a fixed rate : Use the money from the loan to pay off your debt, and then repay this loan in installments over the course of a specified time. You may be eligible for a loan when you have bad or good credit (689 or lower) However, borrowers with higher scores will likely have the lowest interest rates.

Two additional ways to consolidate debt is taking out a or . However, these two options come with the risk of losing your home or your retirement. Whatever you decide, the best option for you is based on your credit score and your profile as well as your .
>> MORE:
Debt consolidation calculator
Utilize the calculator below to determine whether it makes sense for you to consolidate.
Debt consolidation can be an intelligent choice
Success with a consolidation strategy requires the following factors:
Your monthly debt payments (including your mortgage or rent) aren't more than 50 percent of your monthly gross income.
Your credit is good enough to be eligible for credit cards with low interest rate or low-interest debt consolidation loan.
Your cash flow is always sufficient to cover the cost of your debt.
If you choose a consolidation loan then you will be able to pay it off within five years.

Here's a scenario when consolidation makes sense: Let's say that you own four credit cards with interest rates that range between 18.99% to 24.99 percent. Your payments are always made punctually, so your credit is good. You might qualify for an unsecured debt consolidation loan with a rate of 7%which is a significant reduction in interest rate.
For many, consolidation can provide a glimpse of light at an end. If you're taking the loan with a three-year term it is likely to be paid back in three years -- assuming you pay your bills on time and manage your spending. In contrast, the minimum payment on credit cards could mean some time before they're fully paid and you'll be paying more interest than the original principal.
Readers can also ask questions.
Do you think it's an excellent suggestion to merge credit cards?

Consolidate your debt if you are able to get an loan at better terms and/or it will help you pay your bills on time. Just make sure this consolidating is part of bigger plan to get out of debt and you don't run over new balances on the cards you've consolidated. Find out more about .




What is the debt consolidation loan function?

A personal loan allows you to pay off your creditors yourself, or you can use an institution that pays directly at your creditor. Find out the steps to .




Do debt consolidation loans hurt your credit?

Consolidation of debt can improve your credit score if you pay on time or consolidating the balances on your credit cards. Your credit could be affected when you accumulate debt on your credit cards, close most or all of your cards or fail to make a payment on you debt consolidation loan. Learn more about .







If debt consolidation isn't worth it, then don't do it.
Consolidation isn't a silver bullet for debt problems. It can't fix the spending habits that create debt in the first place. Also, it's not the best solution for those who have no chances of paying it off even by making smaller payments.
If the debt you're carrying is minimal -- you could get it paid off in six months to a year at your current pace -- and you'd only save a negligible amount when you consolidate, don't bother.
Do-it-yourself debt repayment alternative, like the . You can utilize a tool to experiment with different strategies.
If the total of your debts exceeds half of your income and the calculation above reveals that debt consolidation is not the best option for you, then you're better off than treading in the water.
>> >> MORE: Sign-up with NerdWallet to view your current payment schedule and breakdown of your debt all in one spot.
It's the time to pay off debt
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About the author: Amrita Jayakumar is a former writer for NerdWallet. She was previously employed by The Washington Post and the Miami Herald.







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