Should I Consolidate My Debt

Should I Consolidate My Debt

According to’s analysis of Federal Reserve statistics, the average American holds $5,284 in credit card debt. This figure surges to $7,527— per card, among those who carry a balance. If you have big balances on high-interest credit cards among the Americans, you may wonder if you should consolidate your debt.

There’s no question about it: it’s easier to have less debt than more. In reality, it strongly correlates lower balances with higher credit ratings. Debt restructuring has several advantages — it can help you get out of debt and boot your credit score. But it’s perfect for you?

4 good reasons why you should consolidate your debt

  • You’re able to pay off your debts and set them behind you.
  • You want to save money on interest by securing a lower monthly payment.
  • You may be entitled for a lower payment to make the loans easier to manage.
  • You’re sick and tired every month from juggling multiple payments.

The benefits of debt consolidation


The restructuring of your loans provides three main advantages.

First, there’s the small issue of debt relief. Even if you’re stuck under the balance of your credit card, you want to postpone paying your debts. They’re supposed to be classified as resolved, meaning you pay less than you owe. On your credit report, that’s never a good look.

But, there is a lower interest rate where you can save cash. Cutting the interest rate ensures that more of the cash will go to the overall account, not interest–ensuring that your loans will be paid off faster. if you have a high level of credit card, the benefits can be considerable.

An improvement to your credit score is the other bonus of consolidating your loans. A lower credit usage rate (the amount of your credit that you are currently using — i.e., your credit card debt) is correlated with a better score, as described above. That’s because the second biggest variable in your credit score behind prompt payments is low debt rates.

Finally, you might find it easier than three or four or more to pay a single bill each month. This will help you to pay down your debt more quickly by not saddling you with late payment credit card fees. It can also help you by missing payments to avoid further torpedoing your credit score.

The cons of consolidating debt

First, question yourself — and be honest: will you just owe more debt? It’s not good to take away all that debt from your credit cards if you just load it up again. When you match this description, the biggest financial mistakes of your life could be a restructuring mortgage.

You must also look at any loan-related charges, including early repayment penalties. Loans do not make up credit cards. Banks expect a certain amount of time will take you to repay the loan. When you pay it off earlier than that, they’ll lose money on the tax you’d charged, so they’ll be willing to whack you with an early debt payment fee.

You may not apply for a consolidation loan with favorable rates if your credit has been dinged up by whatever expense you landed in debt. If the conditions do not differ from what you are paying on your existing credit cards, it is usually not worth taking out a new loan.

In the meantime, some banks require consolidation loan collateral. If in the past you have accumulated unmanageable debt, you are at a higher risk of re-entering unmanageable debt. Are you willing to lose any of your collateral you may need? Before heading to a bank for a guaranteed consolidation loan, that’s a significant question.

Alternatives to merging debt

A consolidation loan is not the only option. You can increase the number of credit cards issued.

Why would you do this? So you can use a balance transfer to take advantage of zero percent interest exclusive deals. In many situations, merely because of the rock-bottom interest rate, this will be a better option. In most instances, you will have to pay down the debt within 12 months or longer charging no interest, allowing you to make faster progress.

The days are gone when credit card companies threaten you with a lot of back interest not to pay off your exchanged balance in full before the introductory rate ends. So even if you get to pay off on the new card your outstanding debt, you’re still going to come out ahead.

The catch is that they usually charge about 3 percent of a balance transfer fee — that would be $300 on a $10,000 balance— so make sure you’re saving enough on interest charges to make it worth your time. Therefore, before taking out a loan, this should be your first stop on the debt consolidation route.

If you don’t have an option to get a credit card for a balance transfer, then Tally may be an opportunity to those with month-to-month balances. Tally is a mobile app that helps consumers pay off their credit card balances more quickly and avoid late fees while maximizing their savings. When you pass, Tally will use a credit line that applies for you (at a lower interest rate than your cards)* to pay down your high-interest credit cards.

tally app

You will need to apply for a credit score of at least 660. Once you add your cards to Tally, your algorithm will determine the best way to pay at the right time, on time each month, the optimal amount from the credit line. Tally clients save an overall interest charge of an average of $5,000.

Their service is currently available in Arkansas, California, Colorado, DC, Florida, Illinois, Louisiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, Texas, Utah, Washington, and Wisconsin.

The Tally line of credit is required to use the app. Depending on your credit history, your APR (which is the same as your interest rate) will be between 7.9% – 19.9% per year. Similar to credit card APRs, it will range with the market based on the Prime Rate. This information is accurate as of June 2018.

When consolidation loan makes sense


The primary reason you’re going to merge your debt is if you’ve been in over your head and are willing to make changes to your expenses to get back above it. Simplifying the transactions, spending less in taxes, and seeing faster progress on your balance can be a useful tool. But if you’re not altering the actions that first put you into this situation, a fresh line of credit won’t change anything and could only drive you deeper into debt.

Ideally, once you want to merge your loans, you want to pay off your outstanding debt in one year or less, and definitely not more than three years. If in five years you can’t even pay it off, it may be time to skip restructuring and start talking to a bankruptcy lawyer.

Debt restructuring is not for everyone, but it can be a really clever move for many people to get back on board with your finances.