ZelphinaDebt consolidation: how it works and when it helps
What it means to combine several debts into one payment, the common ways to do it, and the risks to weigh first.
Key points
- Debt consolidation combines several balances into one new payment, for example with a debt consolidation loan or a balance transfer card.
- It only helps if the new APR and fees are lower than what you pay today, and if you avoid building new balances.
- Promotional rates often expire, and a longer term can mean paying more in total.
- Debt consolidation is different from debt settlement, which carries bigger risks.
What debt consolidation means
Debt consolidation means taking out one new form of credit to pay off several existing debts, so you have a single payment to track. The goal is usually a lower interest rate, a lower monthly payment, or a clear payoff date.
Common ways to consolidate
Debt consolidation loan
A personal loan used to pay off credit cards or other debts. You then repay the loan in fixed monthly installments. Compare the loan's APR, including any origination fee, with the APRs you pay today.
Balance transfer credit card
A card that lets you move existing card balances, sometimes at a low introductory rate. Balance transfers usually carry a fee, and the promotional rate expires, after which the rate can rise and your payment can go up. New purchases on the card may start accruing interest right away.
Home equity loan
Borrowing against your home can offer a lower rate, but it puts your home at risk if you cannot repay. If home values fall, you could owe more than the home is worth.
Talk to a nonprofit credit counselor
Nonprofit credit counseling agencies can review your budget and may offer a debt management plan. You can also contact your creditors directly and ask about a lower rate or payment plan.
When consolidation can make sense
- The new APR, including fees, is clearly lower than your current rates.
- The monthly payment fits your budget for the full term.
- You have a plan to avoid adding new balances to the cards you paid off.
Consolidation vs. settlement
Debt consolidation pays your debts in full with new credit. Debt settlement companies try to negotiate to pay creditors less than you owe. Settlement often involves significant fees, usually asks you to stop paying your bills while you save, and can hurt your credit, lead to collection activity or lawsuits, and leave some debts unsettled. Avoid any company that charges fees before it settles your debts.
Comparing consolidation loans?
On Zelphina, pick Personal loan and then Debt consolidation to see partner offers for that purpose. Each provider sets its own eligibility and terms.
Explore options on Zelphina