What is debt consolidation, how to consolidate your debt, and should you consolidate your debt. There are two primary ways to consolidate debt, both of which concentrate your debt payments into one monthly bill.
Get a 0% interest, balance-transfer credit card: Transfer all your debts onto this card and pay the balance in full during the promotional period. You will likely need good or excellent credit (690 or higher) to qualify.
Get a fixed-rate debt consolidation loan: Use the money from the loan to pay off your debt, then pay back the loan in installments over a set term. You can qualify for a loan if you have bad or fair credit (689 or below), but borrowers with higher scores will likely qualify for the lowest rates.
Success with a consolidation strategy requires the following:
1.Your total debt excluding mortgage doesn’t exceed 40% of your gross income.
2.Your credit is good enough to qualify for a 0% credit card or low-interest debt consolidation loan.
3.Your cash flow consistently covers payments toward your debt.
4.You have a plan to prevent running up debt again.
Consolidation isn’t a silver bullet for debt problems. It doesn’t address excessive spending habits that create debt in the first place. It’s also not the solution if you’re overwhelmed by debt and have no hope of paying it off even with reduced payments.
If your debt load is small — you can pay it off within six months to a year at your current pace — and you’d save only a negligible amount by consolidating, don’t bother.
Try a do-it-yourself debt payoff method instead, such as the debt snowball or debt avalanche.
If the total of your debts is more than half your income you’re better off seeking debt relief than treading water
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