The average American household owes more than $130,000 in debt, and that burden can feel overwhelming.
Credit cards can be a major source of debt – revolving balances that average more than $15,000 per household and growing – but most of us also carry student loans, mortgages and sometimes high vehicle loan payments. Getting a handle on your finances often involves consolidating debt so that your payments are more manageable and those balances start going down.
The good news is that you have time to work on reigning in your spending and consolidating debt. When considering the question “How do I consolidate debt and start saving,” reducing your monthly spending to an amount within your means is one of the most important steps toward finding the answer.
Let’s take a look at three options for managing your debt:
- Balance transfers to credit cards
- Personal loans
- Home equity loans
Balance Transfers to Credit Cards
If you have only a small amount of debt, you might be able to pay it off through a balance transfer to a new credit card. Many cards today offer 0% APR for the first year to 18 months, and sometimes you can get perks that include cash back or a $0 fee on balance transfers.
Shifting debt to a new card only works if you are getting a significantly better rate, stop spending on your existing card, and can pay off your debt within the 0% APR term. Some cards will charge you interest on the transfer if any of that amount remains past the initial 0% APR term, which could cause a financial hit down the road.
If you have moderate or better credit, then you could receive a stronger interest rate on personal and home equity loans, which typically makes them a better vehicle for larger debts.
A personal loan is one of the most common tools used to consolidate personal debt, especially auto loan and credit card debt.
Many companies will offer a personal debt consolidation loan package that helps you manage your finances with a locked-in lower interest rate, payments you can schedule, and the flexibility to select payment amounts and terms to best fit your needs. Compared to credit cards, you’ll typically pay much less interest and pay off your debt faster if you move it all to a personal loan.
Personal loans typically don’t require any collateral, so your rate is largely dependent upon your personal credit history. Poor credit can push up the APR on these loans over 20%.
Depending upon how much debt you need to consolidate, there are additional options. Home equity loans are commonly used as debt consolidation loans and can have a higher lending limit than personal loans.
Home Equity Loans
Your home equity can be a great lifeline to getting back in fit financial shape. Perfect for larger debts and long-term expenses, a loan against the collateral of a home typically delivers better interest rates and other savings.
Home equity loans have previously been used to pay for home improvements and major expenses, such as medical bills, but many more people are turning to these loans for debt consolidation. That’s because the benefits of a home equity loan include:
- Rates often better than credit cards and unsecured loans
- The ability to secure a loan even with a lower credit score
- Fixed interest rate, terms, and monthly payment amounts
- Lower fees, if any. Discover Home Loans has no application, origination, or appraisal fees, and no cash is required at closing
If you have a large amount of debt on a high interest rate card or loan, a home equity loan can reduce payments, interest amounts and more. This can allow you to get back on your feet and pay just a single bill each month. Minimizing your bills makes it easier to control your finances and ensure that you don’t overdraft or have to make the hard choice between paying debts and covering regular expenses like gas or groceries.
As with all loan products, it’s best to work with a professional lending partner to make the most of your situation. To learn more about using a home equity loan to consolidate debt, talk to a Personal Banker at Discover Home Loans today. Apply online now or call 1-855-361-3435.
And remember, there’s a debt consolidation vehicle out there for everyone. Find yours and get on the road to fiscal recovery.