The economic impact of COVID-19 has us all searching for creative ways to make ends meet. One way is to consider the simple, effective option of debt consolidation. Debt consolidation is when you combine multiple high-interest loans into a single, lower-interest payment, potentially saving you hundreds of dollars each month.
First things first: is debt consolidation right for you?
Whether it’s right for you depends on your financial circumstances and the type of debt consolidation you’re considering. If you have multiple high-interest loans — including credit cards, medical bills, or student loans — debt consolidation could be a smart way to combine all of your debts into one lower-interest payment.
Types of debt consolidation to consider:
Debt Consolidation Loan
With a debt consolidation loan, you can borrow enough to pay off your debts, and the money is sent directly to your creditors. The old accounts will be paid off and closed, and you’ll be left with just one loan payment. For a debt consolidation loan to be worthwhile, the interest rate should be lower than the average rate of your old loans.
Home Equity Loan
A fixed-rate home equity loan is commonly referred to as a second mortgage. Home equity is the difference between what your home is worth and what you owe to the lender. Using your home’s equity as collateral, you’ll receive a one-time lump sum, and that money is used to pay off your old, high-interest debts. With a fixed-rate home equity loan, your new monthly payment will remain the same throughout the lifetime of the loan.
Home Equity Line of Credit (HELOC)
With a HELOC, you borrow and spend money just like a credit card. But unlike a credit card, the interest rate is much lower than the national average. Make low, interest-only payments during the draw period. After 10 years, the balance converts to fixed monthly payments over 15 years. Money owed must be repaid before or at the time of selling your home.
Balance Transfer Credit Cards
According to the 2019 Consumer Financial Literacy Survey, nearly 40% of U.S. adults carry credit card debt from month to month (and that was before the pandemic). At LMCU, our Prime Platinum Visa is the nation’s number one low-interest credit card.* Use the card to consolidate your unsecured debts into one low-interest credit card payment. There's no transfer fee and no annual fee.
Use our debt consolidation tool within our financial calculator page to help you determine how quickly you could get out of debt and how much interest you might save.
Whether you’re trying to manage your finances during a global pandemic, improve your debt-to-income ratio, want to take advantage of lower interest rates, or just want to make life a little simpler with one monthly payment, we can help you choose the right debt consolidation option.
For more ways to keep your finances healthy, wealthy, and wise, check out the LMCU podcast: Wallet Wisdom.
Topics: Home Financing & Renovation