The Benefits of Consolidating Debt Into One Payment
November 29, 2021
Credit cards and loans are convenient tools that let you buy what you want and pay for what you need right now. But you can easily end up with so many monthly payments that you lose track of what you owe.
One easy solution is to consolidate debt into one payment. Read on to find out about all the ways debt consolidation can help you stay on track!
One Low Monthly Payment
Juggling multiple bills and monthly payments can be stressful. With different due dates and different interest rates, you might struggle to remember which accounts need to take priority.
When you consolidate debt into one payment, you transfer all your balances into a single convenient account.
This means you’ll have:
A single monthly payment
A single due date
A single, competitive annual percentage rate (APR)
A future date when you can plan to be debt-free!
Easier to Budget
Working out your monthly income and expenses is a breeze when all your debts are in one place. You won’t have to open up multiple credit accounts to find out the current balance and your new monthly payment will always be the same.
Benefits of a simple budget include:
You’ll have more time to spend on other projects instead of always trying to figure out how much cash you have to spare.
A simple budget means less stress, which means you’ll be able to enjoy your life more.
You’ll have extra confidence to start new ventures rather than feeling like your debt is holding you back.
Less Money Goes on Interest
Some of your old debts may have come with a high interest rate so a large chunk of your monthly payment was likely going toward interest, and not on paying down the balance.
In addition, your credit score might have been lower when you took out your old debt so you may have been given a higher APR than you deserve now.
Here’s how to save on interest when you consolidate debt into one payment:
Find out the APR you’re paying on all your different types of debt.
Shop around for a credit card or personal loan with a more competitive APR.
Get pre-approved to see what APR you’ll get for your credit score.
If it’s obvious you’ll get a better deal, take the new option!
Improve Your Credit Score
When you have multiple monthly payments, it can be easy to miss a due date. Missed payments usually put a dent in your credit score, and they also show up on your record when a lender reviews your financial history.
Your credit score will get a boost when you consolidate your debt, and here’s why:
You’re less likely to miss a single payment so your credit score will keep improving, not going backward.
If you pay off your other credit cards and keep the accounts open, you’ll have a lot of credit available to you and this means you’ll have a great debt-to-credit ratio, known as your credit utilization ratio.
Your credit utilization ratio is a key factor in determining your credit score so your score will go up.
Note: Taking out a new credit card or loan leads to a small, temporary ding in your credit score, but it will soon bounce back when you start making timely monthly payments.
Faster to Become Debt-Free
When you have a single credit card or loan, it’s easier to keep your eye on the prize. You can watch the balance going down from month to month until it’s all paid off – or at a level that you can comfortably manage.
Here are a few tips for paying off your debt faster:
Once you’re getting a lower APR, you might be able to afford to pay more than the minimum on your new, low-interest credit card or personal loan.
Paying more than what’s due will mean your debt disappears faster.
Although a credit card is an open-ended account, you can set yourself a goal to pay it all off before a certain time.
Some cards come with a low-interest introductory period so you could aim to pay off most of your debt in that time.
How to Consolidate Debt into One Payment
Now that you’ve seen the benefits of debt consolidation, it’s time to talk about the nuts and bolts of how you can do it. Most lenders will offer a few convenient options so you can choose the one that suits you.
A personal loan is a popular choice because you can select a loan that’s secured by the funds in your savings account or an unsecured loan.
If you own your home, you could access cash to pay off your debts through a home equity loan or a home equity line of credit.
But the simplest solution is to get a credit card that’s designed for people who want to transfer their debt balance. These cards offer a super low interest rate for an introductory period and then a competitive rate going forward. Click below to find out more!