What exactly is debt consolidation?

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^{By Bromwich+Smith Staff | 847 words | Reading Time: 4 minutes and 15 sec | Date: 2024/01/05}

Having multiple debt payments can be difficult to manage. Keeping track of different payment dates and amounts, and making sure you always have cash to cover them all can be exhausting. One way to simplify them is to consolidate them into one single regularly scheduled payment. Debt consolidation is one way to do this.

Debt consolidation is the process of merging multiple debts into a single debt. So instead of making separate payments to multiple credit cards, lines of credit, or loans each month, you can roll them into one payment. Preferably debt consolidation comes with a lower interest rate. 

Debt consolidation can be used to merge several types of debt, including:

Credit cards
Personal loans
Student loans
Vehicle loans

While debt consolidation won’t eliminate your debt challenges, it can help make it easier and less expensive to pay off.  With a lower interest rate you could save quite a bit overall and having one payment will enable you to stay on top of your bills, avoiding late payments. 

Debt Consolidation Types

There are several options available, each with their own pros and cons.

Debt Consolidation Loans

These personal loans consolidate multiple loans into one fixed monthly payment. Debt consolidation loans generally have terms between one and 10 years, and many will let you consolidate up to $50,000. Some of the cons include that this does not address the underlining cause of debt which can lead you back into the habit of overspending. If this is the case you will find yourself with more debt- not less, and this time with less options to clear your outstanding debt.

Credit card balance transfer

If you have multiple credit card debts, a balance transfer credit card can help you pay down your debt and minimize your interest rate. Like a debt consolidation loan, a balance transfer credit card transfers multiple streams of high-interest credit card debt onto one credit card with a lower interest rate. Keep in mind that balance transfer credit cards tend to have higher interest rates than other forms of debt consolidation, as well as there may be a transfer fee applied. Read the small print, as often the lower interest rates that are initially offered to draw you in may not last and you will have a higher interest rate in the end.

Student loan refinancing

Refinancing your student loans can help you obtain a lower interest rate especially if you have high-interest student loan debt. While refinancing can be a great way to consolidate your student loans, you’ll still have to meet eligibility requirements. It is vital to note that you may lose access to government programs, including student loan forgiveness, and repayment plans again another reason why its important to read the fine print.

Home equity loan

A home equity loan allows you to tap into your home’s existing equity. Most home equity loans come with repayment periods between five and 30 years, and you can typically borrow up to 85 percent of your home’s value, minus any outstanding mortgage balances. Plus home equity loans tend to have lower interest rates than credit cards and personal loans because they are secured by your home. There can be added expenses including the cost of an auditor to evaluate your homes value.

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Home equity line of credit

A home equity line of credit (HELOC) is a home equity loan that acts as a revolving line of credit. Like a credit card, a HELOC allows you to withdraw funds as needed with a variable interest rate. A HELOC is also based against your home’s existing equity, so the amount that you can borrow is dependent on the equity you have in your home.

Debt Relief Programs

You do have other options available including federally regulated government programs like a bankruptcy or consumer proposal.

When you declare bankruptcy, you legally eliminate all creditor actions.  Creditors can no longer contact you and collection activities must stop- including wage garnishment.

A Consumer Proposal is a strong resource that allows you to find a fresh start. A Licensed Insolvency Trustee will renegotiate what you owe to your creditors, which can reduce your overall debt by up to 85%. Think of it as a single negotiated settlement between you and your creditors on terms you both agree on. All creditor action including collection calls and interest charges are stopped, giving you immediate peace of mind again. 

As you can see there are many options available, each with pros and cons. This is why it is important to speak to a Licensed Insolvency Trustee, or Debt relief specialist to learn what options may be best for your situation. You may find that you are able to pay off your debt on your own with a few simple to follow tips. If you need additional support you will find a team ready to walk through the journey with you and support you throughout.

Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at  1-855-884-9243, Live Chat  or you can request a call back at contact us page. We want to see you flourish!    

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