Consolidating debt means bundling debt under one roof at a good interest rate. When Should You Consider Debt Consolidation? In this article and the GOBankingRates infographic below, we share some common scenarios where it makes sense to consolidate your bills.

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Let’s take a look at debt that qualifies for consolidation and the next steps you need to take if you decide to consolidate your debt.

If you have multiple student loans

If you have multiple student loans, you may want to refinance your student debt or consolidate the debt if you are not eligible for refinance. Student debt consolidation combines all of your existing loans into one loan at a new interest rate that is the weighted average of your previous loans. This allows borrowers to simplify their cash flow and payment process.

However, before consolidating student loans, it is important to keep the following points in mind. First, borrowers are only allowed to consolidate federal student loans. Personal loans are not consolidable. Second, a new interest rate through consolidation does not change your interest rate. What it does is average all your installments, which can help make payments easier to manage.

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If you have big debts

Large debts often involve credit cards. Francis Collins SVP, credit to Federal Credit Union of Teachers, said debt consolidation is ideal for individuals who have multiple credit card debts. Large credit card debt involves large balances and high interest rates.

Barry Rafferty – Senior Vice President and Head of Capital Markets at Freedom Financial Asset Management, the wealth management and lending division of Freedom Financial Network – said that consolidating can be an excellent idea if you have multiple credit card accounts and owe money on those accounts with high interest rates.

“Many people have a hard time juggling payment dates and making sure they make every payment on time every month,” Rafferty said. “Working with a debt consolidation loan eliminates the risk of late payments and rising interest rates on many different bills, as well as the stress of having to manage everything.”

If you have multiple high-interest loans

Similar to student loans and credit cards, if you are burdened with other types of high-interest loans or have debt, you can explore the best debt consolidation option to save on interest and pay off the debt.

Next steps to debt consolidation

Once you know you’re ready to consolidate your debt, or have any of the above debts that qualify for debt consolidation, Rafferty recommends taking the following steps.

Understand your debt situation

Before you start looking for debt consolidation methods, Rafferty said the first step is to understand your particular debt situation. Along with organizing your current debt and ensuring your ability to repay, you should be able to face the real problem behind the need for debt consolidation.

“Most people find that working to consolidate and eliminate debt means changing some habits and getting serious about the payment schedule,” Rafferty said. If you’ve been living beyond your means, now is the time to create a budget and stick to it.

Choose the best debt consolidation loan

While multiple consolidation options are available, such as For example, with home equity loans or a payout refinance, most people consolidate their debt with a consolidation loan. Use this time to shop around for the best deal and find a lender you can communicate with easily.

“Many potential borrowers benefit from working with a lender who has loan advisors who can work with them to determine the best terms and interest rates and who can take the time to understand their credit situation and other factors that may indicate that they are financially responsible. ‘ Rafferty said.

When looking for the best consolidation loan, ask about available discounts. Rafferty uses the example that some lenders discount interest rates when there is a solid co-borrower or when retirement savings have reached a certain level.

Prepare your credit profile

Interest rates are highly dependent on creditworthiness, so Rafferty recommends applying for a consolidation loan with the best credit profile possible. (Some lenders may require a certain number of years of credit history before you can apply.)

“In most cases, higher credit scores mean lower interest rates,” Rafferty said. There are cases where lenders can still give consolidation loans to consumers with bad credit, but the caveat is a much higher interest rate.

It is also helpful to know the debt to income ratio. Rafferty said many lenders would charge less than 40%.

Please, fill in the application

Once you have the best consolidation loan offer for your debt, the next step is to fill out the application and pay off the debt.

After the debt is paid off, you have much more financial flexibility to pay off the loan and change your financial situation to get back on the path to financial freedom.

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