How to reduce debt stress and when to consolidate debt

Recent research has shown that credit scores and debt have increased since the COVID-19 epidemic. People are becoming more cautious about debt and have less to accrue. Those who can afford it are taking advantage of the opportunity to reduce their existing debt. Here’s some additional info from 

No matter what your financial situation is, it’s a smart time to reduce debt stress wherever you can. While there are many ways to tackle debt, debt consolidation is the smartest way forward for most people. Here’s some additional info from

Consolidation = One Monthly Payment, One Rate

Consolidating debt is just what it sounds like. It involves combining several smaller loans into one larger loan. The consolidation loan will have a lower interest rate than your existing loans. The less information that we need to process when times are difficult is a plus. There are so many decisions to make, especially about which debts to pay first. Debt consolidation can help you to simplify your finances and give you a better understanding of your financial picture.

One of the greatest benefits of debt consolidation is the feeling of freedom that you feel when you stop paying four to five monthly installments and instead only have one. You can free up cash flow to pay other priorities, keep a positive outlook, lower debt stress and lift some weight. It can also give you a new payoff date which can be both motivating and calming.

Is debt consolidation right for you?

Although debt consolidation can be a great way to boost your financial situation, it is not for everyone. You can consider other payment strategies, such as the “snowball”, or “avalanche” if you are on track to repay your debt in the next year.

Consolidation could be a good option if your debt is lower than 40% of your gross monthly income, and your credit score is strong enough to qualify for a 0% debt transfer or low-interest consolidation loan.

If you have multiple credit cards with interest rates between 18% and 24%, but you are consistent in your payments and have a high credit score, then you might be eligible for a consolidation loan at 7% to 10% interest.

Consolidating your debt if it exceeds half of your income may be a better option. You may have to pay a higher monthly payment and less flexibility if you consolidate too much debt. However, this all depends on what type of debt you have and your particular circumstances. If you are struggling with debt and don’t know what to do, you might consider contacting a credit counseling agency.

What types of debt can be combined?

Credit card debt is the most popular form of debt people consolidate. However, there are other types of unsecured debt you may be eligible for, including personal loans, medical debt, personal loans and store cards. Consolidating student loan debt can be done, but it requires a specialized program. Additionally, consolidating federal student loans could result in losing certain benefits like forgiveness.

Step one to a new beginning

Consolidating debt can be seen as a chance for you to reset your finances. While debt consolidation may offer short-term advantages, it might not be the best long-term solution. Take the time to look at your credit score, balances, interest rates and credit score before applying for a consolidation loan. Next, do the math and talk to an expert to determine if you are saving money in the long-term and if you are prolonging your debt repayment journey.

In the ideal world, we all should try to avoid high interest debt by creating a budget plan that will allow us to spend within our means.

Financial confidence can be achieved by learning how to manage your debt.

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