Debt can pile up fast. But don’t let bills and credit card payments overwhelm you: we’ve got tips, and you’ve got options. One of the simplest, most effective ways to make your finances more manageable is debt consolidation. By consolidating debt, you combine multiple, high-interest loans into a single, lower-interest payment, potentially saving you hundreds of dollars each month.

Should I consolidate debt?

Whether debt consolidation is 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 not only simplify your debt, but also make it more affordable.

What are the types of debt consolidation?

Debt Consolidation Loan

A debt consolidation loan lets you 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)

Like a fixed home equity loan, a HELOC’s value depends on your home’s value and how much you’ve invested in it, but a HELOC also allows you to borrow and spend money at your own pace, just like a credit card. Unlike a credit card, though, the interest rate on a HELOC is much lower than the national average. Make affordable, 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

A credit card balance transfer is perhaps the best way to consolidate debt, since it doesn’t require a new loan nor any home equity. You simply transfer the balances from your other, high-interest credit cards to a new, low-interest credit card. This can be an appealing option, since, according to Bankrate’s latest Credit Card Debt Survey, 50% of credit cardholders carry card debt from month to month

A great credit card for consolidating your debt through a balance transfer is LMCU’s Prime Platinum Visa. As one of the best low-interest credit cards in the nation according to Forbes*, a Prime Platinum card can bundle your unsecured debts into a single credit card payment with no transfer fee and no annual fee.

Just how quickly can you get out of debt? Use our handy credit card payoff calculator to see how long it might take — and how much interest you might save along the way.

Whether you’re trying to dig your way out of deep debt, 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.

Ready to take the next step? Learn more about budgeting basics in our Financial Wellness Center, or apply for a Prime Platinum Visa in just minutes!

*Forbes, 2024.