For many Americans, high debt is becoming the new normal. The average American holds more than $137,000 in debt. This includes all forms of debt including mortgages, auto, and student loans.
The current COVID-19 pandemic is placing more financial pressure on millions of American households. Those affected by the health crisis are turning to credit cards to stay afloat. Medical debt is a growing threat due to the coronavirus as well.
Debt consolidation is one potential solution to help Americans keep debt under control. Read on for a comprehensive guide to consolidating your debt. Explore how consolidation can reduce your monthly expenses and make the debt more manageable.
What Is Debt Consolidation?
Americans hold many different types of debt. Even within a particular debt type, a person could have multiple active accounts. In fact, the average American has four open credit cards.
There is a point where a person can have too many credit cards. In this scenario, the consumer is juggling multiple due dates.
This often leads to late payments and the lender assessing expensive penalties. It is also more difficult to contain the exponential growth of interest with multiple credit cards.
Debt consolidation is an appealing solution to this predicament. Under a consolidation package, you can fold multiple debts into one account. Your total balance will be the same, however, the debt becomes much easier to manage.
What Are the Different Debt Types?
You are likely wondering what types of debt can be consolidated. Many are under the false impression that consolidation is for credit card debt only.
The good news is that consolidation packages accept a wide range of other debt types. Continue reading to learn what types of debt are accepted into a consolidation package.
Medical debt is plaguing the American people. Did you know that 137 million Americans are struggling with medical debt?
This figure is certain to rise due to the current COVID-19 pandemic. In addition, the unemployment rate is surging and people are also struggling to earn wages.
The current economic conditions only exacerbate the nation’s medical debt issues. The good news is that you can consolidate medical debt.
Delinquent bills often find their way to a collection agency. When this occurs, a debt collector starts hounding you to pay up.
You will be receiving frequent calls and e-mails pressuring you to pay. In addition, collections have a negative impact on your credit score. An effective way to stop collection agency harassment is to fold your debt into a consolidation package.
Private Student Loans
College tuition and expenses are so high that public student loans are not cutting it anymore. Many students are turning to private student loans to make ends meet. They use private lenders to pay for books, housing, and other higher education expenses.
The amount of private student loan debt in the United States has surpassed $110 billion. Even more alarming, this type of debt has grown by 20% since 2014.
Private student loans are infamous for high-interest rates and fees. A consolidation package can take care of these negative factors for you.
Other Debt Types
There are many other debt types that can be consolidated. Personal and business loans fall into this category. Other lines of credit are considered on a case-by-case basis. You should discuss your debt with a loan specialist to see if it can be consolidated.
What Are the Benefits of Consolidating Your Debt?
There are many benefits to consolidating your debt. It was mentioned earlier that a single consolidated account is easier to manage.
You will have fewer monthly payments to juggle. There will also be less risk of late payment and the penalties associated with it.
There are financial benefits associated with consolidating your debt. First, you can reduce your monthly interest expenses.
This occurs when you consolidate lines of credit with a high-interest rate. You should seek out a consolidation package with interest rates lower than your existing accounts.
This will result in cost savings. With a lower interest rate, your monthly payments will also be lower. However, this is not the only way you can reduce your monthly payment.
Selecting a longer loan term can also result in lower monthly payments. Consider a scenario in which you have a private student loan with a 5-year period to pay it back. If your new line of credit is 7 years, your monthly payments will be lower.
What Is the Impact on Your Credit Score?
The impact on your credit score is mixed. In the short-term, you will see the adverse effects of a new loan application. Some lenders run your credit score while others do not. Any new inquiries on your credit report are going to have a small, negative impact. Also, opening up a new line of credit is going to have a small, negative impact as well. This is because it will decrease the age of your credit history.
Over the long run, however, a consolidation package could impact your credit score in a significantly positive way. With only one account to manage, it is more likely that you will make on-time payments.
Consolidating your debt is an important first step in eliminating it altogether. Reducing debt and making on-time payments are factors that will drive your credit score up over the long term.
What to Expect When Applying?
Applying for a consolidated loan is easy during the digital age. You can complete a short application online.
Based on your needs, you can review different offers. Comparing the various offers ensures that you receive the best deal. The best offers require you to put no money down on your new line of credit.
Do You Need Debt Consolidation?
Consolidating your debt may be the silver bullet you were looking for to improve your financial situation. You can lower your monthly payment and reduce interest expenses. It is also much easier to manage one account rather than juggle multiple lines of credit.
If you are interested in debt consolidation, please contact us today to get started.