Managing Your Debt Through Consolidation

Whether it's the result of credit card spending, medical bills, payday loans, or some other combination of causes, personal debt can pile up in a hurry. A small deficit created by a few missed or minimum payments can quickly balloon when late fees and finance charges are combined with already high interest rates. Though it may seem like an impossible task, there are ways to take control of your debt in order to manage and eliminate it all together. One of the best strategies to consider is debt consolidation.

What Is Debt Consolidation?

You consolidate your debt by combining multiple debts into a single bill. You're left with just a single monthly bill payment, making the entire process of paying down your debt more efficient and easier to manage. As a result of combining payments, you're likely to secure a lower interest rate as well as lower your monthly payment. By lowering your interest rates, you’ll be able to get out of debt faster and save a lot in interest costs ­– often as much as several thousand dollars. Also, you should be able to avoid late fees and other charges because you will have only one payment instead of multiple payments.

Credit card debt is known as revolving debt, and debt consolidation is known as installment debt.  In most cases, when you convert revolving debt to installment debt your credit score will increase, possibly substantially, meaning you're more likely to qualify for higher loan amounts and lower interest rates in the future.

What Are The Main Strategies For Consolidating Debt?

There is no magic potion for getting out of significant debt, so debt consolidation strategies require a long-term and diligent commitment. If you stick to your approach, though, you'll see your debt slowly shrink and eventually disappear.

The two main approaches to debt consolidation are Debt Management Plans and Debt Consolidation Loans. Our credit-counseling experts at Wailuku FCU can walk you through your different options to determine which is best suited to your needs and future success.

Debt Management Plans (DMPs). A Debt Management Plan is just what it sounds like – a road map for lowering and eliminating your debt. DMPs are usually set up through non-profit institutions founded for this specific purpose. Wailuku FCU has teamed up with one such organization, Balance, to assist our members in creating Debt Management Plans. Our knowledgeable staff works together with Balance to educate, inform, and empower our members to take control of their financial lives. Credit counselors will help you figure out how much money you can set aside monthly to pay down your debt, and they'll work with creditors to lower or eliminate existing fees and negotiate lower rates and payments. You'll make one monthly payment to the organization you've chosen, and they will pay your creditors. This approach might lower your credit score in the short term, but it should rise again once you're debt-free.

Debt Consolidation Loans (DCLs). If you go the route of a Debt Consolidation Loan, you'll secure a personal loan from a financial institution that, in turn, assumes your debt. Instead of paying your creditors, you'll pay your credit union a single monthly payment, repaying the DCL. Rates on DCLs are fixed and usually significantly lower than the rates offered by your creditors. At Wailuku FCU, fixed rates on our personal DCLs are as low as 4.49%. Compared to credit card rates of 20-25%, this represents significant savings that allows for lower payments and a faster end to your debt, which in turn will result in a substantial savings in interest cost.

How Is Debt Consolidation Different Than Debt Settlement?

If you're considering debt consolidation, it's important to understand how it's different from debt settlement, another option you may have come across. They're often confused. As you've learned, debt consolidation involves taking out a single loan with better rates from our credit union to pay off multiple debts. You make one payment a month, and if you stick to your plan and pay on time your credit score should stay in good shape. Debt settlement companies, on the other hand, claim they'll slash your debt by negotiating lump-sum settlements with your creditors. The problem is that many creditors won't do business with debt settlement companies. In addition, debt settlement has a significant, lengthy, and negative impact on your credit score. This can affect your ability to secure loans and reasonable credit card rates. The short of it is, think twice before using debt settlement services.

How Do I Get Started With Debt Consolidation?

The first step is to talk with one of the knowledgeable loan officers here at Wailuku Federal Credit Union. Our credit counseling program is open to members and non-members alike, and guides its participants, step-by-step, to a better understanding of their debt and their options for addressing it. Whether it's one of Wailuku FCU's top-rated Debt Consolidation Loans, a detailed Debt Management Plan, or a list of strategies for how to budget and manage debt on your own, WFCU’s experts will empower you to take control of your debt – and re-take control of your life.

There's no time like right now to start down the road to a debt-free existence. Call 808.244.7981 or head to WFCU’s resource center to make an appointment for credit counseling today.

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