When you have multiple loan or credit card payments due each month, debt consolidation could make your life a lot easier. This act combines all of these debts into a new, single payment to provide you with more favorable payoff terms, like a lower interest rate and lower monthly payments. Use this guide to determine whether you should talk to your bank about this type of loan.

How Is Debt Consolidation Performed?

There are two primary types of debt consolidation, zero-percent balance credit card transfers and fixed-rate debt consolidation loans. You can apply for these through your bank, credit union, or credit card company. Ideally, start with the companies you have the best and longest-standing relationship with for preferred rates. However, as these are unsecured loans not backed by assets, be aware that the best rates are often harder to obtain.

If this route doesn’t work, consider secured loan options, like home equity or 401(k) loans. These loans must be backed with an asset like your house or car, so make sure you can cover the debt. 

When Is Debt Consolidation a Good Idea?

If you are dealing with a significant amount of debt, typically over $10,000, consolidation offers a way to reorganize it. This resource is typically used as a way of paying off debt faster or getting rid of high-interest rates. If you are not closing accounts, it can also help to lower your debt-to-credit ratio and raise your credit score in the process. 

If you are considering consolidation for your credit card debt or other loan payments, the total debt shouldn’t exceed more than 40 percent of your total gross income. Also, good credit is not necessary, but it will help you to qualify for low-interest loans or zero percent credit cards. 

Debt consolidation does not erase current debt, so it is not for those who are unable to make current payments or that are likely to run up additional lines of credit while repaying the consolidation loan. In these cases, talk to your bank and creditors about debt settlement options. 

If you are tired of juggling multiple loans and credit card debts, talk to the professionals at Putnam 1st Mercantile Bank in Cookeville, TN, about a debt consolidation loan. This locally-owned bank offers a full line of banking services, including checking, savings, certificate of deposits, and personal and commercial loans. Visit their website to learn more about these services, and call them today at (931) 528-6372 to discuss your loan needs.