Consolidating debt with
Debt consolidation is especially effective on high-interest debt such as credit cards.It should reduce your monthly payment by lowering the interest rate on your bills, making it easier to pay off the debt.» MORE: Follow these 3 steps to pay off debt Two additional ways to consolidate debt are taking out a home equity loan or 401(k) loan.However, these two options involve risk — to your home or your retirement.Debt consolidation is a sensible solution for consumers overwhelmed by credit card debt. Consolidation cuts costs by lowering the interest rate on debts and reducing monthly payments.Debt consolidation is a financial strategy, merging multiple bills into a single debt that is paid off by a loan or through a management program.Here’s a scenario when consolidation makes sense: Say you have four credit cards with interest rates ranging from 18.99% to 24.99%.You always make your payments on time, so your credit is good.
» MORE: 4 ways to consolidate debt Use the calculator below to see whether or not it makes sense for you to consolidate.
Your credit may be hurt if you run up credit card balances again, close most or all of your remaining cards, or miss a payment on your debt consolidation loan.
Learn more about how debt consolidation affects your credit score.
The first step toward making debt consolidation work is calculating the total amount you pay for credit cards every month and the average interest paid on those cards.
That provides a baseline number for comparison purposes. For many people, there is enough left to handle their debt if they organize their budget better and get motivated to pay down debt.