Trying to Go Debt-Free? 4 Ways Debt Consolidation Can Help

If you’re seeking ways to get rid of debt it’s likely that you’ve heard about Dave Ramsey’s “seven baby steps” approach to financial health.

Baby step 1 is to put the sum of $1,000 in savings after which you can move to baby step 2 — paying off the total amount of non-mortgage debt you owe by using”the “debt snowball” method.

It’s no surprise that baby steps 2 can be a long time. But the positive side is that there is an option to accelerate the process, however, it’s about bucking Dave’s suggestion a bit. Let us explain.

Does Dave Ramsey … in error?

One of the main lynchpins of Dave Ramsey’s baby-step program is to pay off debts by using”the “snowball method.” This method lets you pay off your debt in the order of your balance from the smallest to the largest.

In simple terms: When you pay only the minimums on the remainder of the debt put the rest of your money towards the payment of your account with the lowest balance. When that’s completed then you transfer that funds to the next-smallest account and so on until your debts are cleared.

The concept is that, when you have paid the balance of each one, you’ll have more money to put into the next. The amount increases like an iceberg that rolls along the ground.

Ramsey is a fervent advocate of this program due to the mental boost you receive after you have paid off each loan. The idea is to achieve easy success in the beginning, and then become more committed as you work through harder debt. This is a good method to take when your issue in resolving debt is primarily about your attitude.

However, it has important disadvantages.

Another is that when you’re making the effort to pay off your lowest balance, you’re paying by interest elsewhere. This may not be a major issue in the near term but if you’re carrying bigger loans that take some time to pay off, you could accrue more debt than you have to. This not only costs the borrower money, but also can also slow you down.

What are you able to do?

Consolidate your debt

Consolidating your debt is replacing several loans with a single loan. This is why it’s a great method.

1. It can help improve your credit score.

Consolidating debt can boost your credit score boost, especially if you’re replacing credit cards using personal loans.

A credit card balance is among of the worst types of debt you can have on the score of your credit. Removing it by personal loans, even in the same amount can help your credit score due to that reason by itself.

Furthermore your credit utilization ratio — the amount of debt you carry against. the credit limits of each of your credit cards has a significant influence on your credit scores of yours. Again replacing the credit card with loans for personal use lowers the ratio, which can improve your credit score even before you begin to cut down on your debt.

2. It makes it easier to track

If you’re thinking about the snowball technique, chances are you’re in debt to many different creditors. Due dates vary, various minimum amounts for payments, various rates of interest and fees … every one of of those elements can make it difficult to keep all of it.

It could be a significant issue since even a single late payment could damage your credit.

Consolidation solves this issue through the replacement of all your loans with a single one. This decreases the likelihood of making an error and not meet an important deadline.

3. You may be able to get a lower interest rate

Credit cards come with some of the highest rates of interest for businesses. The switch to a personal credit card can result in an overall lower interest rate and save you hundreds, to even thousands as you work to pay down your credit card debt.

Consider this in the following method: The higher the interest you pay, the lower of your monthly payments are going towards principal. Lower interest rates means that you’ll get more accomplished.
For instance, our current top choice in personal loan options, Citizens Bank, is currently offering rates that are as low as 7.99 percent (as of September 19, 2019) which is much lower than the rates you’ll see on the majority of credit cards. Additionally is that there are discounts that can lower the rate by an additional 0.50 percent.

4. It wards off any temptation It eliminates the temptation

Dave Ramsey is all about making use of your mental skills in order to eliminate debt quickly. Consolidation can help you do that.

Why? Most likely since a personal credit one that you get with one large lump sum and payback when it’s completed. It’s not used to buy groceries or indulge in the late-night Amazon shopping spree. In contrast to credit cards, it doesn’t entice you to spend.

There are many ways to get rid of your debt, and Dave Ramsey’s method has assisted numerous people. If you’re in the middle of big debts that have high-interest rates, it might be beneficial to think about consolidating them prior to embarking with the snowball approach. It could save you much time and money as well as a hassle by doing this.

If you’re considering a private loan, be sure to check out the current deals at Citizens Bank. We love their simple application procedure and competitive interest rates and quick approval. Whatever lender you select, be sure to take advantage of discounts! A quarter- or half-point reduction in interest rates can make a huge difference over the duration of the loan.

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