When Should You Consolidate Debt?

Debt can be a stressful thing, especially when it’s coming at you from multiple directions. The average American has more than $5,000 in credit card debt and it’s not unusual to have that spread out among several accounts.

Debt consolidation is a solution that can simplify billing to one statement and lower interest rates so that you have a single, manageable payment. But, when should you consider debt consolidation?

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stack of credit cardsYou Have a High DTI

The first signal could be your debt-to-income ratio. That’s your total debt relative to your gross income. The Federal Reserve considers 40% a sign of fiscal stress, while 20% is considered low. If you fall toward the smaller end of the spectrum, debt consolidation may not be necessary for you. 

You Can Lower Your Interest Rate

This is the primary reason to pursue debt consolidation. If you can lower your interest rate, you can pay more toward the principal. The more you can apply to the principal balance, the faster you can pay off the debt. Start by determining your average interest rate and compare it to the APR on a personal loan or home equity line of credit (HELOC).

Your Credit Is Good Enough for a 0% APR Promotion

It may seem counterintuitive, but getting 0% on a balance transfer to a new credit line could be a very smart move if your credit score allows you to get such a promotion. This allows you to pay the lowest interest rate possible so that all your payments go toward the principal.

You Can Control Your Spending

Of course, none of this matters if you don’t get to the root of your debt problem. In order to become debt-free, you must have a plan to change your financial ways so that you don’t end up in the same situation. This starts with a monthly budget that you commit to sticking with. This should naturally be a lot easier if you’re paying one lower monthly bill to one source.

So, if you truly want to be debt-free, consolidation is a great opportunity to achieve this. Visions has debt experts who can walk you through all the options to ultimately relieve debt stress. If you fall into any of the above categories, this may be a good time to reach out for the guidance of a Visions debt expert.