This story was produced on behalf of Discover Personal Loans. Discover Personal Loans does not guarantee or endorse any specific claims made in this article.
Maybe you’re saving for a big purchase or struggling to pay your bills. Maybe you can’t keep track of all the store card bills you need to pay down, or just want some advice on how to make the most of your finances this year. No matter why you’ve decided to make 2020 the year that you finally get your finances under control, debt consolidation can help.
Debt consolidation means combining all bills from various creditors, medical payments, among others, into one set single payment. There’s a fixed interest rate, which could save you money on interest owed on revolving debt, and a known payoff date. It can also help you stay organized, since you have to keep track of only one set monthly payment and monthly payment date instead of juggling multiple due dates and amounts.
If you’re ready to learn more about how to consolidate your debt and finally get your finances back on track, keep these tips and strategies in mind.
1. Start by speaking with a debt counselor
If the idea of debt consolidation is totally new to you, you may want to talk to a debt counselor or credit counselor first. Debt counselors offer advice for people who feel the pressure of bills piling up and can’t seem to make a dent in their overall debt balance.
To find a qualified and experienced debt counselor, consider starting with the Department of Justice’s list of approved credit counseling agencies. You can also find a counselor through the National Foundation for Credit Counseling, a nonprofit credit counseling agency offering low-cost counseling services.
You and your counselor will work together to develop a debt management plan with strategies to set you up for success. A counselor can help you decide whether taking a personal loan to consolidate your debt is a step that makes sense for you.
2. Apply for a personal loan to pay down higher-interest debt
Opting for a personal loan is an easy way to simplify all of your higher-interest debt and bills with one simplified loan with a set interest rate. From the very beginning, you’ll be able to look forward to a set pay down date when your debt will finally be paid off. You could also save money on interest by locking in a fixed rate. Unlike revolving debt, this never changes.
A 2019 survey conducted by Discover Personal Loans found that the majority of debt consolidators said they saved an average of $302 per month by consolidating debt with a personal loan.
When looking for a lender, look for a reputable one, with a choice of repayment terms and no loan origination or pre-payment fees. It’s also worth looking into banks that offer personal loans and offer helpful customer service to help walk you through the process. Some lenders, like Discover Personal Loans, can send fundssent fast – funds can be sent straight to your creditors as early as the next business day after acceptance. Almost immediately, you can enjoy the incredible relief of having to manage only one payment and start your journey to paying down debt.
3. Consider a personal loan to finance a large purchase
If you’re saving up for a home remodel or repair, braces for your kid or another large purchase that you can’t cover with your savings, consider taking out a personal loan to finance the purchase instead of reaching for higher-interest options. Personal loans typically offer lower interest rates than credit cards, especially if you have good credit. That makes a personal loan a financially responsible option to finance your next big purchase.
Another benefit of a personal loan compared with racking up credit card debt is that you know from the start when it will be paid off. Flexible repayment terms mean that you can select the time period that’s right for you, usually between three and seven years. A personal loan calculator can help you estimate how different payoff periods will affect your estimated monthly payment.
Personal loans also offer flexibility when it comes to the loan amount, with some banks offering amounts of up to $100,000. A personal loan can be a financially responsible option to finance purchases you can’t cover with savings or to consolidate existing debt.
4. Be careful about payday lenders
On the surface, payday lenders and personal lenders may seem to offer similar services: typically quick access to funds that you can use at your discretion. Dig deeper, though, and you’ll find that the services are actually quite different.
You can identify a payday lender by the description of the loan as a cash advance from your upcoming paycheck. They’re usually smaller companies, not like the big banks you’ve heard of before. A payday lender typically provides small, short-term loans at high interest rates on the agreement that you’ll pay back the loan as soon as you receive your next paycheck. Although it can sound appealing, many of these loans are actually just “debt traps,” according to the Consumer Financial Protection Bureau. They often carry an average annual interest rate of more than 300%, in addition to other fees.
Personal loans, on the other hand, offer annual percentage rates that typically range from 5% to 36%. Instead of paying the loan back when you get your next paycheck, you can structure the loan to pay it back in whatever time period works for you, paying the total back over several years if that’s what works best.
It’s a misconception that personal loans are difficult to apply for or take a long time to come through. Many lenders offer online applications. Once you’ve submitted your application, many banks offer a decision the same day or the next day. Additionally, you don’t necessarily need a high credit score to qualify.
There are other benefits to a personal loan over a payday loan: the fact personal loans are offered by major banks means that not only are they trustworthy, but they also come with excellent customer service that can help you understand the process.
5. Transfer your balance to an account with lower interest
Rather than taking out a loan, some people choose to transfer their debt balance to a lower-interest credit card. This may make sense if you’re prepared to pay down your debt in the short term, allowing you to take advantage of a card’s limited-time, low-APR promotional offer. This method typically pays off only if you’re certain that you can pay down your balance within the promotional period, so make sure to carefully consider your situation before selecting this option.
If you’re overwhelmed by the idea of getting your finances in order in 2020, take comfort in the fact that you’re not alone. The average U.S. household has $136,355 in debt; if you’ve made the commitment to getting yours under control, you’re already one step ahead.
For more information on how to consolidate your debt and improve your financial standing, visit Discover Personal Loans at discover.com/personal-loans.
ABOUT DISCOVER PERSONAL LOANS SURVEY
All figures are from an online customer survey conducted August 12 to August 27, 2019. A total of 648 Discover personal loan debt consolidation customers were interviewed about their most recent Discover personal loan. All results are at a 95% confidence level. Respondents opened their personal loan between January and June 2019 for the purpose of consolidating debt.
