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You can use personal loans, balance transfer credit cards, or home equity to consolidate your debt.
- Debt consolidation - i.e. turning multiple monthly debt payments into a single payment - can make repayment more manageable.
- You can use personal loans, balance transfer credit cards, or home equity to consolidate your debt.
- Before consolidating your debt, though, address how you got into debt in the first place and make a plan to avoid debt in the future.
- SoFi offers personal loans that can help you save money on credit card debt. Get a quote today »
When you're in debt, it can feel impossible to get out from under the weight of it. If you're looking for options to help you get out of debt and make repayment easier, debt consolidation may be right for you.
What is debt consolidation?
Debt consolidation takes all the different debts you owe and turns them into one monthly payment. For example, let's say you have a few different credit cards, all carrying a balance. Every month, you're tasked with making several payments, each at different amounts, with different due dates and different interest rates. It can be a lot to manage.
With debt consolidation, you take out another loan to pay off all your debts. After that, you only have the debt-consolidation loan to pay off - that's one payment every month instead of several loan payments.
Debt consolidation can help make your payments and monthly bills more manageable. It helps you condense your debt into one simple payment. In some cases, you may be able to save money on interest if your loan's interest rate is lower than the APR on your debts.
Tools for debt consolidation
If managing your payments has become difficult, you might consider debt consolidation. There are various tools you can use to consolidate your debt.
Personal loans
A personal loan is a flexible loan option that can be used for various personal reasons, including debt consolidation. Personal loans are typically unsecured, meaning that they are not backed by any type of collateral, like a home or a car.
Using a personal loan, you can pay off all your various debts then have just the personal loan to pay back. One perk with personal loans is that they typically have better interest rates than credit cards, so you could save money by using a personal loan if you have high-interest consumer debt.
A SoFi personal loan can help you pay off your debts faster. Get a quote today »
Balance transfer credit cards
Another option for debt consolidation if you have credit card debt is a balance transfer. A balance transfer is when you transfer the balance you have on various credit cards to one balance transfer credit card that has a lower interest rate (or, in some cases, a 0% interest rate).
The important thing to note here is that many of these low or 0% interest rates are promotional and only last a certain amount of time. For example, the Chase Slate credit card offers 0% APR for the first 15 months on purchases and balance transfers. But after that period, the rate jumps to 16.74-25.49%, as of October 2019.
If you can pay off your debt in 15 months, or make a significant dent in your balance during that time, you can save money on interest and pay down debt faster.
You also want to be aware of balance transfer fees, which are typically 3 to 5% of your balance. Do the math to make sure doing a balance transfer is advantageous for you.
Also, be mindful of having access to another credit card. If you haven't addressed the spending issue that got you into debt in the first place, having a balance transfer credit card could lead you into more debt if you keep spending.
Home equity loan
If you're a homeowner, you may be able to access a home equity loan as a tool for debt consolidation; a home equity loan allows you to borrow money against your house to pay off other debts.
Note: You may be charged fees or extra costs to access your home equity. Plus, your home is used as collateral for the loan, so if you don't pay it back, your home could be taken by the lender to satisfy the debt.
What to consider before consolidating your debt
Debt consolidation can be used to make debt repayment more manageable and, in some cases, you could even save money on interest. It's important to understand any associated costs or fees with the debt consolidation tools listed above. You want to read through the fine print and look at the terms and conditions.
Most importantly, address the reason you got into debt in the first place and come up with a plan to pay off your debt. If you don't have a strategy in place, these tools could mean winding up in even more debt.
Get out of credit card debt with a personal loan from SoFi. Find out your interest rate today »
More coverage from How to Do Everything: Money
How to use a personal loan to pay off credit cards
What is a balance transfer credit card
How to use a home equity loan
How to get out of credit card debt
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