It’s a common myth that debt consolidation is only for people with poor credit. The fact of the matter is that anyone, even people with excellent credit, can find themselves buried in debt.
With the average American carrying approximately $38,000 in personal debt, excluding a mortgage, it’s easy to see why so many people are interested in consolidation.
The nice thing about excellent credit is that it positions you to take advantage of multiple forms of debt consolidation. The most common types include:
- Home equity line of credit or home equity loan: With this, you use the equity in your home to consolidate your debt into one payment. The primary concern is that you’re putting your home up as collateral, meaning the lender can repossesses it if you default.
- Personal loan: As an unsecured loan, it’s easier to obtain a personal loan if you have excellent credit. Without collateral, lenders are limited in regards to options if the borrower defaults. Your excellent credit proves that you’re a low risk borrower.
- Balance transfer credit card: This is a top choice for anyone who has credit card debt, especially if it’s spread across several cards. It allows you to bring all your debt under the same roof, typically with a zero percent introductory rate.
If debt consolidation is on your mind, it’s important to compare the pros and cons of these three options. Only then can you make a confident decision as to what you should do next.
What are the Benefits of Debt Consolidation?
While the benefits differ from one type of debt consolidation to the next, here are some that hold true across the board:
- Gather all (or most) your debt in one place: By doing this, you only have to make one payment per month, which helps from a management perspective.
- Save money on interest charges: For instance, if you have three credit cards with a large balance, you’re probably paying a large sum of money each month on interest charges. Through consolidation, you can eliminate all but one interest charge. Better yet, most balance transfer credit cards come with a zero percent introductory rate that typically lasts anywhere from 12 to 24 months.
- Ease your stress: When you’re swimming in debt, it’s easy to become so frustrated that you simply give up. With debt consolidation, you’ll immediately see yourself making progress. Not only does this ease your stress, but it allows you to more clearly see the end of the road.
Don’t let anyone tell you that debt consolidation is reserved for people with bad credit. Just because you have excellent credit, it doesn’t necessarily mean you’re free and clear of debt.
Even if you don’t end up moving forward with consolidation, learning more about the process will help you better understand your situation and how to make progress in the near future.