Is Debt Consolidation Right for You?
Is your debt keeping you awake at night?A debt consolidation strategy might be a wise next step to get your finances back on track – and get you sleeping better, too.
As with anything in life, debt consolidation requires you to have a plan and stick to it. Begin with a realistic view of your total debts and monthly income. Then, review your debt consolidation options based on what makes the best sense for your finances.
What is debt consolidation, and what are its benefits?Debt consolidation is the combining of debts into one loan or payoff structure, which allows you to make just one payment each month instead of several to a large number of creditors. In addition to simplifying your payments, consolidating debt could create an opportunity to reduce your interest rate and accelerate paying down the overall amount you owe.
How do balance transfer cards work?You may decide to combine credit cards onto one credit card, also called a balance transfer. New credit cards often come with very low initial interest rates and allow you to transfer balances of existing credit cards for low entry fees.
Your new credit card may even offer a 0% introductory APR when you first open it, for a limited time period, on balances that are transferred to it. You can then transfer debt onto this card and, since you will not be charged interest on it, do your best to pay down as much of the balance as you can before the introductory period ends.
It’s important to pay attention to the stipulations of the new card’s interest rate. When does the introductory period end and how much will the interest rate increase? Can you repay all or most of your balance before this introductory period ends?
Also check to see what the maximum allowable amount is that can be transferred to the lower-cost credit card, as there may be limits to the amount of debt you can move.
Can I consolidate debt with home equity?If you are a homeowner and have equity in your home, you may want to consider a Home Equity Line of Credit (“HELOC”) as an alternative debt consolidation option. With a HELOC, you can pull cash out to pay down higher interest rate loans.
At SouthState, homeowners can easily access their HELOC funds through convenience checks and online or mobile transfers. Additionally, any interest paid may be tax deductible.1
Please reference our article on Understanding Home Equity to help determine whether a HELOC is a viable debt consolidation strategy for you. An important factor to consider, since your home would serve as the collateral for the loan, is if you are unable to make your loan payments, there could be a potential negative impact to your credit score, future borrowing ability and ultimately a risk of foreclosure on your home.
Can I get a personal loan to consolidate debt?When you consolidate your debt with a personal loan, you work with a bank to obtain a loan that equals the amount of your debt. With the new loan, the bank pays off all of your outstanding debts at one time, and you then make a monthly payment towards your newly consolidated loan until it is paid off.
A personal loan works as a debt-consolidation tool because it has a fixed monthly payment (a monthly payment that stays the same), which can make it easier to budget. With SouthState you can manage your personal loan using Online or Mobile Banking2, or even set up an automatic payment from your checking or savings account.
If you’re unsure which debt consolidation strategy is best for you, contact a local banker to discuss your options.
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