Can debt consolidation help you start 2024 off right?

The start of a new year is a good time to dig into your finances to see what worked and what didn't over the past 12 months. 

Was paying off debt one of the financial goals you set for last year? How much progress did you make?

If the answer is not as much as you would have liked, there's still time to do something about it. 

You could consolidate your debts, which could make repaying them easier and potentially save you some money. 

What is debt consolidation?

Debt consolidation means combining multiple debts into one. There are a few ways you can do that, but generally, these are the goals:

• Simplify your finances by reducing the number of monthly payments you make

• Get a lower monthly payment

• Reduce your interest rates 

You don’t have to check all three boxes to benefit from debt consolidation. One or two is okay, too.

Why would you consolidate debt in 2024? 

Consolidating can make it easier to map out your debt repayment strategy for the new year. If you only have one monthly payment to keep up with versus many, that can make budgeting less of a hassle. 

A lower interest rate could help you get rid of debt faster because more of your payment goes to the principal balance  each month. Or a lower interest rate could allow you to get a smaller monthly payment, or a longer repayment term.

Ways to consolidate debt

Here's a quick rundown of different ways to consolidate your debts and simplify your finances.

• Personal loan. Personal loans let you borrow a lump sum of money that you can use to pay off other debts. For example, you might be able to borrow up to $50,000 at a fixed interest rate that’s lower than the rate you’re paying on your credit cards—and take anywhere from two to five years to pay it off. 

• Home equity loan. A home equity loan for debt consolidation is a way for homeowners with sufficient equity to pay off other debts by borrowing against their home. Equity is your home’s current market value minus whatever you still owe on the home. With a home equity loan, you might be able to borrow up to $150,000 and take up to 15 years to pay it back. 

• Balance transfers. Balance transfers are another option, though they don't always work the way people think they will. With a balance transfer, you'd move balances from cards with a higher interest rate to one with a lower or 0% APR. It sounds good, but unless you're disciplined about paying off the entire balance before the promotional rate ends, you could end up paying a very high interest rate on the debt that remains. Another common pitfall is to juggle the balance from one card to another as each introductory period ends, and keep using all of the other cards in the meantime. No one ever intends to charge those paid-off cards back up, but it can happen before you know it. You could end up with more, not less, debt.

Other ways to manage your debts

If having a single monthly payment would help you, and you’re looking for ways to potentially lower either the cost of your debt or the amount you owe, you could check on these two options.

• Debt management plan. A debt management plan or DMP is a structured plan for paying off all of your debt in 3 to 5 years under the guidance of an accredited credit counseling agency. You’ll make one payment to the agency, and they’ll distribute the money to your creditors. This option is for people who are having trouble getting a handle on their debts. You’ll probably have to agree not to use credit while you’re in the plan, but the credit counseling agency may be able to negotiate lower interest rates and fees. DMPs can be difficult to complete because the payment is usually quite high. If you can afford a 3 to 5 year payoff plan, a personal loan might give you more flexibility.

• Debt resolution. If you are really struggling with overwhelming debt, debt resolution could help you reduce the amount you owe. Debt resolution works without a loan or great credit—it’s a way you could simplify your debt with one fixed monthly program payment. With debt resolution, experts negotiate with your creditors to resolve your debt for less than you owe. 

How to decide if now is the time to consolidate debt

If you're ready to get your debt under control, debt consolidation may help you start the new year on the right foot. Here are a few questions that can help you decide. 

• How much debt do you owe?

• What interest rates are you paying on each debt, and what's the monthly payment?

• Could you get a lower rate with a personal loan for debt consolidation?

• Are you eligible to apply for a home equity loan?

Get a free debt evaluation to help you understand the different debt consolidation scenarios that might work for you. That’s the best way to get an idea of what you might pay and how long it'll take you to pay down what you owe. A solid plan to tackle your debt is a great way to start your new year.