Back when I had credit card debt, I had an epic argument with my bank coworker about the best way to consolidate it. I wanted to use a personal loan, while she thought I should use a balance transfer credit card instead.
Given that it was our job to help people with their money — and that we did this at the same bank — you’d think we’d have been on the same page, right? The problem was, we were coming from two different philosophies. She was on the “pay it off the cheapest way possible” train, and I was on the “get a definitive payoff date” express.
In the end, we were both right — and we were both wrong. And therein is the hardest part about money: There’s no one-size-fits-all solution.
So, if you’re here to find the best way to consolidate debt, unfortunately there’s no one “best way.” Instead, we’ll talk about various options and their pros and cons, so you can find the best way for you.
How to find the best way to consolidate debt — for you
There are a series of questions to consider to find your best way to consolidate debt. From there, you can formulate the answer that should work for your end goal in the most efficient way possible.
- What kind of debt do you have?
- Are there specific issues holding you back from paying off your debt?
- Which option fits your priorities?
Consider these questions as you review your options so you can pick the one that’ll not just sound good, but be the most effective.
Use a refinancing loan to pay off debt
Student loans, auto loans, and mortgages are all types of installment loans, and refinancing can likely help you lower the interest rates you pay on these. You simply apply for the refinancing loan and, if approved, you can use it to pay off the old loan (or even multiple loans).
What you get in return isn’t just a lower interest rate, but also new repayment terms. You can choose to lengthen the term of your loan if you need to lower your monthly payments — though this option will keep you in debt longer.
For faster debt payoff, you can choose to shorten your repayment terms. Ideally, the lower interest rate will make this possible, but if you don’t think you’ll be able to make the monthly payments in the shorter timeline, don’t choose it. You can always pick a longer term and then pay extra as often as possible.
Tip: Student loan refinancing is an excellent way to lower your student loan interest rates. But if you have federal student loans, refinancing will prevent you from being able to take advantage of federal programs, such as student loan forgiveness or income-driven repayment plans, so consider the trade-offs here.
Use a credit card to pay off debt
You can use a credit card to pay off all kinds of debt, such as installment loans and other credit card debt. But, since credit cards come with an average of 16.69% interest (according to Bankrate), the only way to save money on interest might be to try a balance transfer credit card.
With a balance transfer credit card, you get a set amount of months with low or no interest. The promotional rate can last for anywhere between six months to two years. However, if you don’t pay off the full balance by the time the introductory period expires, then the remaining balance will get charged at a new, higher interest rate.
If you can’t pay off the balance in full by the end of the introductory period, then you might need to take on another balance transfer credit card. This can either be an effective strategy or a vicious cycle — it’s up to you to decide if you’re comfortable with it.
Another thing to remember is that your old credit card (or cards) won’t close once they’re paid off by the balance transfer. If you fear that overspending could become an issue and that you’ll rack up more debt on the old card — or even on the new one — this is something to think about. And if you use the balance transfer credit card for purchases, it could make things a little bit confusing, as you’ll be charged more than one interest rate on the same card.
Tip: If you decide to try this debt payoff method, here’s a way to ensure that it works. Divide your balance by the number of months you have in your introductory period, and then make that number your new monthly payment. And remember not to make any new purchases on your balance transfer credit card.
Use a personal loan to pay off debt
Anyone who’s wary of taking on a new credit card, or who desires a specific payoff date, might think a personal loan is the best way to consolidate debt. You can use a personal loan to pay off a credit card or other debt balances, while (hopefully) getting a lower interest rate and a specific repayment term.
And if you want to play it safe with the monthly payments, you might want to opt for a fixed interest rate so they can’t change on you anytime in the future.
Tip: If you use a personal loan to pay off debt, you’ll likely pay more interest than you would on a balance transfer credit card — assuming you pay off the credit card before the introductory period ends. That said, a personal loan is a good option for those who want to have a fixed payoff date.
Seek help from a professional
Finally, if you’ve tried these products before to no avail, or if you feel that you need extra help in paying off your debt, you could seek help from a debt consolidation company. The problem is, it can be hard to find this type of company.
Many companies call themselves debt consolidation companies when they’re credit counselors or companies who settle your debt. If you’re looking for the best way to consolidate debt, it’s often doing so yourself through one of the financial products mentioned above.
But if you do seek help from a professional, you might find yourself in a debt management plan. In one of these plans, you’ll make your monthly payments to a credit counselor, who then pays out to your lenders. Sometimes they can negotiate lower interest rates or fees for you.
Consider Using LendingTree
If the burden of debt is too great for you to manage on your own, consider debt relief. It can help you get your finances under control if you’re struggling to keep up with multiple credit accounts and balances and other types of debt.
For a fee, a debt relief company can provide extra support to people overwhelmed by debt. This service often includes negotiating with creditors on your behalf to lower monthly payments, rates and what you owe. It can also restructure your debts into a single monthly payment plan. Many debt relief companies will also provide counseling to help you create a budget that works.
Find out more about how debt relief could help and get partnered with trusted providers through LendingTree’s debt relief marketplace.
Tip: These programs cost money and usually last four years or longer, according to the Federal Trade Commission. They can work as a last resort, but if you’re able to consolidate your debt with the financial products mentioned above, it might make sense to do that instead.
Don’t get taken in the wrong direction by the ‘right’ answer
It was difficult to get out of my credit card debt for a few reasons. These reasons included high interest rates, a lack of understanding about how little the minimum payment does for your balance, and continued use of the card, even if it did feel like it wasn’t that often.
After carrying the debt for years, I wanted out of credit cards forever. I wanted a payoff date that couldn’t change. And I wanted a payoff product that was impossible to use and increase the balance on.
And I was more willing to pay a little interest for all of these things because it served my end goal: to pay off credit card debt without using a credit card to do it. In the end, because I knew the root of my problem, I understood the solution that would have been best for me.
But I got carried away by what was seemingly the “better” idea — a balance transfer credit card with an introductory zero interest rate — and I did that instead. As a result, my balance transfer didn’t work the first time, and my lack of a solid repayment plan sent me deeper into debt. Only after several more years and a second balance transfer later was I able to pay off my debt finally.
If you’ve discovered the solution that you think will work for you, don’t worry about whether or not it’s the “best solution.” The best way to consolidate debt, in the end, will be the one that you stick with.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|