It’s no secret that Americans have a serious personal debt problem. According to the New York Federal Reserve, consumer debt reached $14.56 trillion after the fourth quarter of 2020. If your debt has become too burdensome, there is a light at the end of the tunnel. One of the best tools to get out of debt is consolidation.


What is debt consolidation?

Debt consolidation is the process of refinancing and/or turning multiple smaller, high interest rate loans into one single loan. The goal of debt consolidation is to restructure your debt so it will have better terms—like lower interest rates—that will make it easier to completely pay off your debts.


Steps to Consolidating Your Debt:


1. Add up Your Total Debt

Figuring out how much you owe will help you determine what type of consolidation to choose.

2. Compile Your Interest Rates

Each credit card or loan has a different interest rate with a different balance. Compiling this information into one place will help you have a broad look at your current financial situation. Find an online weighted average calculator so you can determine your weighted average interest rate. Once you know that number it will be easier to know the interest rate you need to beat.

3. Determine Your Budget

Look at your monthly budget and see if there is money left that can be used to pay down your debts. Your monthly consolidation payment must fit your current budget. If you don’t have a budget in place, visit our budget calculator HERE.

4. Weigh Your Options

There are different debt consolidation options designed for different situations. Look at your current financial state and determine which route you want to pursue. Below is a brief look at two of the most common forms of debt consolidation.


Credit Card Balance Transfer

A balance transfer is a type of credit card transaction where debt is moved from one account to another. If you feel like you’re swimming in credit card debt that seems impossible to get out of, this might be a great option for you. When doing your research, make sure you are seeking out new cards that have low interest rates with good terms that work with your budget. Something to watch for is balance transfer fees. Some financial institutions charge a balance transfer fee of 3% - 5% of the total transferred. At ALLIANCE, we keep it easy with no balance transfer fees and competitive low rates!


Personal Loan

A personal loan can be used for a wide range of purposes including repaying debt. One of the benefits of this form of consolidation is that you can tame multiple debt accounts at once by combining them into one monthly bill. The lender you choose will give you your repayment timeline upfront, so you have a clear picture for determining if this is the right option for you.


Bottom Line

Consolidating your debt can be a good idea if you can get favorable terms with a lower interest rate. Qualification depends on your income, credit score, and other financial factors. If you qualify, make sure you understand the terms before you agree to them.

Ready to become debt free, fast? Text us at 806.798.4607 to find what options best suit your financial goals!