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How to consolidate debt

Managing debt can be daunting, and finding an effective way to manage it is crucial for financial well-being. One strategy that often comes into play is debt consolidation.

What is debt consolidation?

Debt consolidation is a financial strategy that involves combining multiple debts into a single, more manageable payment. Instead of juggling various monthly payments with different interest rates, debt consolidation streamlines the process by merging these debts into one new monthly payment.

How to consolidate debt

There are various avenues for consolidating your debts, such as using a balance transfer credit card, opting for a debt consolidation loan (which includes personal loans), or leveraging your home’s equity. Additionally, debt settlement and debt management plans present alternative options, but it’s important to carefully consider potential caveats before choosing either path.

A popular option to consolidate debt is a personal loan since it typically comes with a lower interest rate, making it easier for the debtor to repay their outstanding balances and save money on interest. When considering a personal loan as a debt consolidation strategy, be sure you’re clear on what interest rate you’re getting and how much you’ll be paying in interest.

How do debt consolidation loans work?

Debt consolidation loans can take different forms, such as personal loans, home equity lines of credit, or balance transfer credit cards. Here's a breakdown of how these loans generally work:

Personal Loans
  1. Obtain a personal loan equal to the total amount of your existing debts.
  2. Use the loan to pay off all individual debts.
  3. Focus on repaying the single, consolidated loan with a fixed interest rate.

Home Equity Lines of Credit
  1. Use the equity in your home to secure funds.
  2. Pay off existing debts with the proceeds.
  3. Repay the home equity line of credit over a specified period.

Balance Transfer Credit Cards
  1. Transfer existing credit card balances to a new card with a lower interest rate.
  2. Consolidate multiple payments into one monthly credit card bill.
  3. Pay off the consolidated balance within the card's introductory low-interest period.

Does debt consolidation hurt your credit?

Debt consolidation itself does not inherently hurt your credit. In fact, for many individuals, it can have a positive impact. By simplifying payments and potentially lowering interest rates, debt consolidation may make it easier to stay on top of payments and reduce overall debt. However, applying for new credit can result in a temporary dip in your credit score due to inquiries and the new account, so it’s essential to weigh the short-term impact against the long-term benefits.

When considering a Santander Personal Loan, you can check your rates with no impact to your credit score before applying.

When is debt consolidation a good idea?

There are several scenarios where it might be a useful strategy to consolidate debt.

  1. High-interest debt: If you have high-interest debts, consolidating them into a lower-interest loan can save you money over time.
  2. Multiple debts: Managing multiple debts with varying due dates and interest rates can be overwhelming. Debt consolidation simplifies the repayment process.
  3. Improved credit score: If your credit score has improved since taking on your original debts, you may qualify for a lower interest rate through debt consolidation.

Benefits of debt consolidation

What are some of the benefits of employing consolidation as part of your debt strategy?

  1. Simplified finances: One monthly payment makes budgeting and financial planning more straightforward.
  2. Lower interest rates: Debt consolidation can result in a lower overall interest rate, reducing the total cost of repayment.
  3. Potential improvement to credit: Timely payments on a consolidated loan can positively impact your credit score over time.

An additional benefit of consolidating debt through a personal loan is that it is unsecured, which means that it does not require your home or any other assets to act as collateral, simplifying the application process.

Debt consolidation considerations

As with all financial moves, there are some potential downsides to consider.

  1. Extended repayment period: While monthly payments may be lower, extending the repayment period can mean paying more interest in the long run. If you can afford higher monthly payments and a shorter term, you could pay off debt sooner without incurring as much interest. Be sure to make thorough calculations while deciding what makes the most sense for you.
  2. Temptation to accumulate new debt: Some individuals may be tempted to accumulate new debt after consolidating, worsening their overall financial situation.
  3. Fees and costs: Debt consolidation loans often come with fees, and failing to understand the terms could lead to unexpected costs. Be sure to check for closing fees to understand all the details. For example: Santander has no origination or closing fees and no prepayment penalty*.

Ready to consolidate your debt with a Santander Personal Loan?

Debt consolidation is a powerful financial tool that can help individuals regain control over their finances. If you’ve carefully assessed your situation, weighed the pros and cons, and are ready to choose a consolidation method that aligns with your goals, Santander can help. When used wisely, debt consolidation can be a stepping stone toward financial freedom and a more secure future.

With a Santander Personal Loan, you can borrow anywhere from $5,000-$50,000 with repayment terms ranging from 3-7 years*. Check your interest rate before applying with no impact to your credit score. The application is 100% online and easy to complete.

Here are some additional details:

  • Quick approval and same-day funding available
  • No origination fees, no closing fees, and no prepayment penalties
  • One lump sum – receive funds all at once
  • Rate discount available when you set up automatic payments

*Rates and Terms: Personal Loans are subject to individual approval and meeting our credit standards. Your primary residence must be located in AZ, CA, CT, CO, DC, DE, FL, GA, IL, IN, MA, MD, ME, MI, MN, MO, NC, NJ, NH, NY, OH, OR, PA, RI, TN, TX, VA, VT, or WA. The fixed loan Annual Percentage Rate (APR) will depend on your creditworthiness and use of automatic payments (ePay) from any deposit account. The APR on a Personal Loan will increase by 0.25 percentage points and the payment will increase, if ePay is not elected or is discontinued. Fixed loan APRs (with ePay) range from 7.99% to 24.99% and are subject to change without notice. Loan amounts range from $5,000 to $50,000. Loan repayment terms range from 36 months to 84 months. All terms are subject to change without notice. Personal Loans cannot be used to finance post-secondary educational expenses.

†Based on the time your application is received, same-day funding is available in many cases, depending on your creditworthiness and the funding instructions you provide.

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