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Thinking of consolidating your debt? Here are four signs it could be the right move for you

Consolidating your debt can help you save money in the long run.

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Getting out of debt is usually a much harder thing to do than getting into debt, especially if you end up with a large balance and a high interest rate which makes it feel like it'll take over a decade to pay off. As a result, many people turn to debt consolidation loans to help pay off their balance faster.

There are many advantages — as well as a few caveats — to keep in mind if you're considering consolidating your debt. Of course, everyone's situation is different so you should always double check with a financial advisor to ensure your unique personal needs are being met before making your next move.

Below, Select breaks down a few circumstances that indicate when consolidating your debt would be a good step for you to take.

You have multiple monthly debt payments

Consolidation quite literally means combining several things into a single more coherent whole — debt consolidation, therefore, is the process of taking multiple monthly debt payments and replacing them with one monthly payment.

If you have several major bills that need to be paid monthly, consider this the first sign that debt consolidation could be a good next step for you. Consolidating multiple payments into just one can help you feel more financially organized and less stressed about having to divvy up your paycheck to pay them off.

Let's say you take out a debt consolidation loan — that means you would apply for a specific amount of money and once approved, the lender would send the funds to your creditors and pay off those balances. In other words, the only monthly payment you'd be making is for the loan itself.

Some personal loan lenders, like Payoff, for example, offer personal loans as low as $5,000 and as high as $40,000 that are meant exclusively for consolidating your debt.

Other lenders make the debt consolidation process as easy as possible by allowing you to send the funds directly to your credit card companies — most personal loan lenders will instead deposit the funds into your checking account so you can use the money as needed.

Marcus by Goldman Sachs personal loans, for instance, let borrowers send funds directly to as many as 10 creditors for debt consolidation. You'll just need to provide the creditors' names, addresses, account numbers and the amount of money you'd like sent to each, and from there, you'd only have to make monthly payments toward the debt consolidation loan.

Payoff Personal Loans

  • Annual Percentage Rate (APR)

    5.99 to 24.99%

  • Loan purpose

    Debt consolidation/refinancing

  • Loan amounts

    $5,000 to $40,000

  • Terms

    2 to 5 years

  • Credit needed

    Fair/average, good

  • Origination fee

    0% to 5% (based on credit score and application)

  • Early payoff penalty

    None

  • Late fee

    5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)

Terms apply.

Marcus by Goldman Sachs Personal Loans

  • Annual Percentage Rate (APR)

    6.99% to 24.99% APR when you sign up for autopay

  • Loan purpose

    Debt consolidation, home improvement, wedding, moving and relocation or vacation

  • Loan amounts

    $3,500 to $40,000

  • Terms

    36 to 72 months

  • Credit needed

    Good

  • Origination fee

    None

  • Early payoff penalty

    None

  • Late fee

    None

Terms apply.

Your debts carry high interest rates

High interest rates can make it difficult for you to finally be debt-free, especially if you have several payments to make and can only afford to pay the minimum balance each month. Because that minimum payment is most likely going toward part of the interest — and not the principal — you're really just racking up more and more interest charges each month.

One major advantage of debt consolidation is the potential to receive a lower interest rate, which may help you save you hundreds or even thousands of dollars in the long run.

While the new interest rate you receive may not always be drastically lower than your current rate, some savings are still better than none at all. A small percentage change coupled with only having to make one monthly payment can help you save money and feel like you're a little more in control of your finances.

If you're afraid you won't qualify for a low enough interest rate after consolidating your debt, you might instead want to consider using a 0% APR balance transfer card, which would allow you to transfer the balance of one or more credit cards that do have high interest rates onto one credit card with an introductory period where no interest is charged. Most balance transfer cards will charge a fee for each transfer, however.

From there, the goal is to pay down as much of your balance as possible since you won't have to worry about interest charges building up during that introductory period. The Citi® Double Cash Card allows you to complete a balance transfer from the date of first transfer and make monthly payments at an introductory 0% APR for the first 18 months (16.99% - 26.99% APR variable after). Alternatively, the Citi Simplicity® Card lets you make payments at 0% interest with an intro APR for 21 months after you complete your first balance transfer (17.74% - 27.74% variable after). For both cards, balance transfers must be completed within 4 months of account opening. 

Citi® Double Cash Card

On Citi's secure site
  • Rewards

    2% cash back: 1% on all eligible purchases and an additional 1% after you pay your credit card bill

  • Welcome bonus

    For a limited time, earn $200 cash back after spending $1,500 on purchases in the first 6 months of account opening.

  • Annual fee

    $0

  • Intro APR

    0% for the first 18 months on balance transfers; N/A for purchases

  • Regular APR

    16.99% - 26.99% variable

  • Balance transfer fee

    For balance transfers completed within 4 months of account opening, an intro balance transfer fee of 3% of each transfer ($5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($5 minimum) applies

  • Foreign transaction fee

    3%

  • Credit needed

    Good/Excellent

Terms apply.

Citi Simplicity® Card

On Citi's secure site
  • Rewards

    None

  • Welcome bonus

    None

  • Annual fee

    $0

  • Intro APR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

    17.74% - 27.74% variable

  • Balance transfer fee

    5% of each balance transfer; $5 minimum. Balance transfers must be completed within 4 months of account opening.

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

Terms apply.

You already have a good credit score

It's important to make sure your credit score is in good standing before you apply for a debt consolidation loan because the new interest rate you receive will largely depend on your credit score and credit report. Generally, a higher credit score will allow you to qualify for lower interest rates, while a lower credit score will land you higher interest rates.

While there are personal loan and debt consolidation lenders that do accept applicants with less than ideal credit scores, you still run the risk of getting hit with a slightly higher interest rate if your credit score is on the lower end.

Before you apply for a debt consolidation product, double check your credit score. You can use Experian to view it for free and check your credit report so you know exactly what's on there and can look into anything else that might be affecting your chances.

Experian Dark Web Scan + Credit Monitoring

On Experian's secure site
  • Cost

    Free

  • Credit bureaus monitored

    Experian

  • Credit scoring model used

    FICO®

  • Dark web scan

    Yes, one-time only

  • Identity insurance

    No

Terms apply.

You have a plan to stay out of debt

While consolidating your debt may help you to pay it off faster, it won't necessarily keep you out of the debt cycle. Shortly after becoming debt-free, many borrowers find themselves falling back into unhealthy habits and eventually, accruing more debt. Or, while paying down their consolidation loan, they might continue to overspend on the credit cards they're using the loan to pay off, which means they're now stuck paying back the loan and making monthly payments on a high interest credit card all over again.

Debt consolidation itself is just another tool meant to help alleviate multiple high interest monthly payments. It's important to figure out what causes you to go into debt in the first place so you can avoid repeating those financial patterns in the future. By becoming aware of this and creating a plan to keep yourself on track, you'll be more likely to have the most successful debt consolidation experience possible.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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