Debt Consolidation: What It Is and How It Can Help You

Life can get expensive, especially when you’re trying to manage multiple bills and payments. If you’ve found yourself juggling credit card bills, student loans, or medical expenses, you’re not alone. The good news is that there’s a way to simplify things and even save money—debt consolidation.

But what exactly is debt consolidation, and how can it help? Let’s break it down in a simple way so that you can understand how this process works and why it might be a good option for you.

What is Debt Consolidation?

Imagine you have multiple bills—credit card payments, student loans, personal loans, and maybe even a few medical bills. Each one has its own due date and interest rate. This can quickly become overwhelming, especially when you're trying to keep track of everything. Debt consolidation is like putting all of those bills into one, easy-to-manage payment.

In simple terms, debt consolidation means combining multiple debts into one loan. Instead of paying separate bills, you only make one payment a month. This can simplify your life, reduce stress, and—here’s the best part—help you save money. By combining your debts, you might be able to lower your interest rates, which means more of your payment goes toward the actual debt, instead of just paying off interest.

How Does Debt Consolidation Help?

There are a few key ways debt consolidation can make a big difference in your financial life:

1. Simplifies Your Payments: One of the biggest advantages of debt consolidation is the simplicity it brings. Instead of keeping track of multiple bills, you’ll only need to worry about one payment each month. This can reduce stress and make managing your finances a lot easier.

2. Lowers Your Interest Rates: Many people find themselves paying high interest rates, especially on credit cards. For example, credit cards often have interest rates above 20%, which can make it hard to pay off the balance. By consolidating your debt, you could lower that interest rate, which would help you pay off your debt faster and save money in the long run.

3. Saves You Money: When you consolidate your debts, you may be able to get a loan with a lower interest rate than your current ones. For instance, if you have credit cards with a 25% interest rate, consolidating that debt with a loan at ~ 7 to 11% can save you hundreds, or even thousands, of dollars.

4. Frees Up Your Time: Instead of logging into five different accounts each month to make payments, debt consolidation puts everything into one account. This gives you more time and peace of mind.

When Does Debt Consolidation Make Sense?

Debt consolidation is a great option if you’re feeling overwhelmed by multiple debts and are looking for a simpler way to manage them. It’s also a good choice if you’re paying high interest rates on credit cards or other unsecured loans. However, it’s not always the right choice for everyone.

Debt consolidation might not make sense if:

• You have loans with 0% interest for a short period of time (like some credit cards).

• You have medical debt, which often doesn’t have high interest rates.

But even if you’re not sure if consolidation is the best option, it’s always worth speaking with a financial advisor to see if it could help you.

Learn more from our experts!

A Real-Life Example: How Debt Consolidation Made a Difference

Let’s look at a real example. Imagine a young woman named Lily. At 24 years old, she’s just starting out in her career, trying to make ends meet while balancing rent, student loans, and a couple of credit cards. She’s juggling multiple payments each month, and even though she tries to make the minimum payments, the interest charges are adding up. This leaves her feeling stressed and stuck.

Lily decides to look into debt consolidation to see if it can help. After talking to a Member Expert at First Alliance Credit Union, she learns that consolidating her debt into a personal loan with a much lower interest rate can save her hundreds of dollars each year. By consolidating, Lily not only lowers her monthly payments but also simplifies her finances. She’s able to pay off her debt faster and feels a lot more in control of her financial situation.

For Lily, debt consolidation gave her peace of mind, helped her save money, and allowed her to focus on the things that really mattered, like building her credit and starting an emergency fund.

How to Get Started with Debt Consolidation

If you’re thinking that debt consolidation might be a good option for you, here’s what you can do to get started:

1. Take a Look at Your Debts: Before you do anything, take a step back and look at all the debts you currently have. This includes credit cards, loans, medical bills, or anything else you’re paying off. Make a list of all the amounts, interest rates, and due dates.

2. Explore Your Options: Talk to a trusted financial advisor or credit union about your options. You might be able to consolidate your debt through a personal loan, a balance transfer on a credit card, or even by using home equity if you own a home.

3. Make a Plan: Once you’ve decided on the best way to consolidate your debt, make a plan. This means setting up your new loan, understanding your payment schedule, and ensuring you stick to it. This is an important step in making sure you don’t fall back into old habits.

4. Stay on Track: After consolidating, keep a close eye on your finances. Stick to your new payment schedule and avoid taking on new debt. This will help you maintain control of your finances and move forward with less stress.

How can Debt Consolidation Help? 

Debt consolidation is a powerful tool that can help you manage multiple debts, save money on interest, and simplify your payments. Whether you’re just starting out or you’ve faced some setbacks in life, debt consolidation can give you a fresh start. It’s all about finding the right solution for your situation, visit First Alliance Credit Union and speak with a a trusted Member Expert. They’re there to help guide you and show you the possibilities for a brighter, less stressful financial future.

Have more questions about debt consolidation? Ask us!