What is debt consolidation? It’s rolling several debts — like credit cards and medical bills — into a single payment at a lower interest rate. Ideally, this is part of a plan to become debt-free.
When should I consolidate? Debt consolidation is a good idea if you can qualify for a lower interest rate that makes payments more manageable or gets you out of debt faster. It’s not a good idea if you are likely to run up debt again or if the debt is overwhelming.
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How can I consolidate? Two common ways are balance transfer credit cards and personal loans. What works best may depend on your credit score. If your credit score is good to excellent, look for a 0% balance transfer credit card (be sure to pay off the balance before the 0% period expires to avoid interest). If your credit is average, find a personal loan with rates lower than your credit cards.
A poor credit score may disqualify you for a balance transfer card or a personal loan at a rate that would reduce your payments. Keep making on-time payments on current debts; that builds credit, which can help you later.
If unsecured debts equal half or more of your gross annual income or your debts cannot be repaid in five years, bankruptcy may be the best option.