How Can I Combine All of My Debt Into One Payment?

A simple answer to the common question, “How can I combine all of my debt into one payment?” is using consolidation options like bank transfer credit cards from banks or credit unions and debt consolidation loans. However, there’s more to how debt consolidation works besides simply knowing “what is debt consolidation?“

There are several critical things to consider before you combine your debt into one payment.

What You Should Know Before Combining All Your Debt

Debt consolidation isn’t ideal for everyone. It could come with additional costs that make your situation worse. If your debt problems have severely hurt your credit score, you won’t get favorable interest rates on several debt consolidation options. Therefore, it’s crucial to consider the following factors before consolidating your debt.

What got you into debt?

Before combining all your debt, you should find out what you got into debt. Suppose you’re in debt due to bad spending habits, which is considered the most common cause of debt. Debt consolidation won’t work for you if you don’t address this issue, for example, by increasing your income or cutting your spending.

Create a budget

Making a budget and sticking to it can help you avoid unnecessary spending and taking on more debt and enable you to make timely payments. That will help you rebuild your credit score and avoid facing late fees. Debt consolidation won’t help if you can’t discipline yourself to make the required payments on time. Creating and sticking to a budget may even enable you to get out of debt without consolidating it.

Reaching out to creditors

You can reach out to each of your creditors and try to get them to reduce your payments. Some creditors may agree to lower your interest rate or monthly payments, waive some fees, or shift the due date to a more favorable period for you.

Alternatively, you could get support from credit counselors or debt relief companies. These professionals will negotiate with creditors on your behalf for significantly lower payments or interest rates. They can also give you impartial debt advice and a customized plan best suited to your financial situation, even if you consider it overwhelming.

How to Combine All Your Debt

You can combine multiple payments into a single monthly payment with a smaller payment amount or lower interest rate. There are several products that let you merge your debts and pay them down. Each has its advantages and disadvantages that you should examine.

Debt consolidation loan

A debt consolidation loan converts several kinds of your debt into one loan with one interest rate and monthly payment. You may not qualify for these loans if you don’t have a good credit score. These loans may include costs or fees you wouldn’t have paid without consolidation. When picking debt consolidation loans, compare their interest rates and loan terms.

Balance transfer credit card

A balance transfer credit card lets you transfer the balance on multiple cards to a new card. The card usually comes with a 0% introductory interest rate that expires after around 12-18 months. You can only qualify with a good to excellent credit score. The cards typically charge 1%-5% of the debt shifted. Late fees may also apply.

Home equity loan

Home equity loans can consolidate credit card debt. The interest rates on these loans are lower than on personal loans and credit cards. Your home is the collateral for the home loan, meaning you could lose it if you don’t make timely payments.

401(k) loans

You can borrow 50% of your 401(k) retirement fund or $50,000, whichever is less, to pay off credit card debts. There’s no credit score check, and interest rates are very low. However, borrowing from a 401(k) plan may affect retirement savings and prevent the funds from earning compound interest over time.

How debt consolidation works with regard to home equity loans and retirement accounts is risky. As a result, it’s not recommended that you use these methods unless you’ve exhausted other options or have a financial emergency.

Now that you know the answer to “How can I combine all of my debt into one payment?” and the factors to consider, make sure you have a plan and research all the available options to find the best solution to get you back on your feet.