If you feel like you’re in a lot of debt, you’re not alone. On average, Americans owe $6,354 in credit card debt alone. Considering the median household income is $56,516, that amount of debt could represent over 10% of annual income.
Beyond credit card debt, many Americans carry other types of loan debt as well. One major source debt is education, as “outstanding student loan debt has tripled in the last decade.” Added to a mortgage and an auto loan or two, this incredible weight of debt can be devastating for the average family.
Because of the massive responsibility of shouldering loan payments and minimum payments every month, many Americans are only one financial crisis away from financial ruin. Home repairs, car repairs, or medical bills can often cost into the thousands, leaving a family already on the financial edge to find themselves in a debt nightmare they can’t escape.
That’s where debt consolidation comes in. While debt consolidation is a blanket term for many financial options, what it generally means is that you take out a loan or find a very low-interest credit card and use them to pay off all your bills or high-interest credit cards or student loans.
The goal with debt consolidation is generally to lower your monthly payments by reducing interest and to make sure you pay off the principal of your loan so that you have some hope of escaping debt one day.
How debt is consolidated is more complicated. For homeowners, tapping into home equity is often an appealing option. Home equity loans, second mortgages, and home lines of credit can offer low-interest alternatives to consolidate debt by using your home as security. As with any loan you consider taking, it’s important to pay attention to the interest rates offered and the length of your loan term. There are very good debt calculators online that can help you determine if a loan consolidation option will save you money in both the short and the long term.
Super low-interest credit cards can also be used as a debt consolidation option. Again, it’s important to take a good look at the fine print before considering a low-interest credit card to consolidate debt. Sometimes credit cards have low introductory rates that will eventually increase which could leave you with a far greater amount of debt and minimum payment than you have now.
Whatever possible debt consolidation options you consider to deal with your debt problems, be sure to shop around, consider all your options, and do your homework on the terms of any loan or credit card you consider.