Are you considering consolidating your debt? How do you know if it’s the right choice? First thing you should know is there are different kinds of debt consolidation. Debt consolidation is not for everyone – especially through a company specializing in consolidating debt – which is usually expensive, costing you hefty fees for their service. Instead look to a trusted financial partner when thinking about consolidating your debt to determine if it is a good idea and what your choices are.
Ask the question. Consolidating your debt can be beneficial depending on your situation. Ask yourself “What am I hoping to achieve by consolidating my debt?” Do you want lower monthly payments, to pay less in interest, reduce the number of bills you pay each month for less confusion; or maybe you’re thinking ahead to retirement and want an easy way to pay off your debt before that time comes?
Partnering with a trusted financial partner can help you ask yourself those questions, and also help you plan ahead to ensure you’re successful. For example, if your goal is to reduce the number of monthly payments, but you’re going to open another loan after your debt consolidation in finalized, consolidating your debt is not the sole solution. You may also want to partner with your member advisor to create a budget and change your spending habits.
Consider your options. From personal loans to home equity loans and borrowing from your nest egg – there are many options when it comes to consolidating your debt. And each of these options comes with pros and cons. Thinking about taking out a personal loan? You won’t need to borrow against any collateral like your home, but you will probably pay more in interest.
Perhaps a Homeowner Consolidation loan is the way to go instead? Your home isn’t used as collateral, the application process is faster than for a home equity loan and the rate is usually lower than for a personal loan. There are many options to consider. You don’t have to have to wade through all the options and benefits by yourself.
Do the math. You’ve defined your goals and determined your best loan option. Compare a few different financial companies’ rates. Having a good handle on where your credit score is at comes in handy here. Tip: compare apples to apples – don’t compare a variable rate to fixed rate, and take into consideration any penalties for paying your loan off early or an introductory rate that expires.
Estimate your new monthly payment, what you’ll likely pay in interest and length of loan. Compare that to what you are paying now. Use a calculator like the one here or partner with your member advisor. Do the numbers match your goal? You might just be one step closer to keeping a little more money in your pocket.