Is Debt Consolidation Right for Me?
When you review your finances you may notice that you are making several payments to different creditors but it doesn’t seem like the balances are ever getting smaller. There’s a good chance this situation is a result of high interest rates on credit cards and/or loans.
Debt consolidation is the process of moving several (probably) high-interest debts into a new loan or line of credit. Debt consolidation can help you pay off your debt quicker, with less money going toward overall interest payments. It’s a good option for some, if the conditions are right.
Here’s what you need to know about debt consolidation:
What are the benefits of debt consolidation?
Saving on interest payments. The primary benefit of debt consolidation is saving on interest costs. Long-term debt with a high-interest rate can cost thousands of dollars in interest payments over the life of the loan. That’s money you may not need to pay! Moving that debt to a new loan or line of credit with a lower interest rate, or sometimes no interest rate at all, can translate into significant savings.
Simplified payments. With just one monthly payment to make, managing your debt will be a lot easier.
Fixed payment timeline. Debt consolidation often means having a fixed payment timeline. This makes budgeting easy and allows you to make long-term financial goals, with a fixed date for when you will be debt-free.
Boost your credit score. If you’ve been falling behind on your monthly payments, consolidating your debts into a single low-interest loan can help boost your score.
What are the disadvantages of debt consolidation?
May prolong the payment timeline of the debt. Moving debt to a new loan can sometimes involve extending the loan term. This means the borrower will be in debt for longer.
Doesn’t eliminate irresponsible spending habits. If overspending and irresponsible money management landed the borrower in debt in the first place, consolidating debt on its own will not solve the problem.
Lower interest rate may not last. Many low or no interest credit cards offer these features as a temporary promotion. Once an introductory period ends, the borrower will be hit with high interest rates.
How can I consolidate my debt?
You have several options for debt consolidation, each with its pros and cons.
Personal Loan or Personal Line of Credit (PLOC): Taking out an unsecured loan from Abilene Teachers FCU will enable you to pay off all your outstanding loans immediately and move your debts into one lower-interest loan. Personal loans and PLOC’s with other lenders may have origination fees and other charges. Lucky for you, though, as a member of Abilene Teachers FCU you have access to personal loans or personal lines of credit with no origination fees and interest rates as low as 7.75% APR*. Check out all our personal loan options!
Home Equity Loan: A home equity loan uses your home as collateral for a fixed-term loan. The drawback of using your home as collateral to help you pay off debt is that you risk losing your home to foreclosure if you fail to meet your payments. Also, if the value of your home drops, you may end up owing more on your home than what it is worth. Finally, repayment terms for HELs can be upward of 10 years. On the positive side, a Home Equity loan is a secured debt, meaning that the interest rate will be lower and may provide significant savings. Additionally, interest on home equity loan loans is often tax-deductible. Our page on Home Equity Loans has additional information.
Balance transfer. Moving your debt to a new credit card with a low-interest rate or a zero-interest offer will make it possible for you to pay off your debts immediately. The obvious disadvantage of opening a new credit card is that it can cause you to rack up a new credit card bill with your expanded available credit. Also, as mentioned earlier, you will be hit with high (often very high) interest rates when the introductory period ends. A third downside to this route is that because credit card debt has no end date, you may not achieve that debt free life anytime soon. Fortunately, as a member of Abilene Teachers FCU, you can use our lower-than-most credit cards to help you get rid of your debt quicker. Check them out here.
If you’re ready to consolidate your debt, we can help! Call, text or stop by Abilene Teachers FCU today to discuss your options.
All loans subject to approval. Rates, terms & conditions are subject to change and may vary based on creditworthiness, qualifications & collateral conditions.
* APR = Annual Percentage Rate and rates are effective as of 4/1/2024.
