Debt consolidation rolls high-interest debts, such as credit card bills, into a single, lower-interest payment. It can reduce your total debt and reorganize it so you pay it off faster.
If you’re dealing with a manageable amount of debt and just want to reorganize multiple bills with different interest rates, payments and due dates, debt consolidation is a sound approach you can tackle on your own.
How does debt consolidation work?
There are two primary ways to consolidate debt, both of which concentrate your debt payments into one monthly bill. However, you’ll likely need good credit to qualify:
- 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.
- 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.
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. In any case, the best option for you depends on your credit score and profile, as well as your debt-to-income ratio.
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