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NerdWallet’s 2016 Debt Survey shows that Americans have only increased their total debt in the last decade, with the average household’s credit card debt at $16,061 and their total average debt, including mortgages, at a staggering $132,529! This increase in debt also means an increase in ways to consolidate that debt. Consolidating debt can help a household pay off the debt faster, save money, and keep track of payments to avoid late fees. The best way to consolidate debt differs for every household’s unique situation, so read on to learn more about what options exist and which option would be most beneficial for you.

Type of debt that can be consolidated

 Other types of debt you can consolidate are:Most types of debt can be consolidated. The most popular form of debt to consolidate is credit card debt, because interest rates tend to skew higher on revolving debt like credit cards rather than an installment loan like a home equity loan.

• Credit cards
• Auto loan
• Home loans
• Personal loans
• Student loans
• Medical bills

Is it the right time for you to consolidate

The loan or credit card you’re transferring your debt to has a lower interest rate, less fees, and you’ve calculated that it will save you money. While consolidation has the potential to save you thousands of dollars in interest, it isn’t always the best option. You should only consolidate your debt if:

1. You have a plan in place to pay off the debt once it has been consolidated. You know exactly how much money will be going towards the debt each month and know the time frame in which it will be paid off.
2. You will not add additional debt while paying off the debt you consolidated.
3. You have struggled with keeping track of the due dates on all of your separate accounts, and consolidating to one account will help you keep track of your payments and not incur any more late fees.

The most popular lending tools for debt consolidation

 This consolidation tool transfers your existing debt to a new credit card account. This is a popular option because many credit card companies and financial institutions often run special promotions with extremely low interest rates on credit cards for a specific period of time after you complete a transfer. This can be beneficial by reducing the amount of interest you owe on the debt, but only if you’re able to pay it off within the promotional time frame or if the regular interest rate on the card is still less than what you’re currently paying.Credit card balance transfers

Pros: Desirable introductory interest rates, some institutions don’t charge fees for a transfer

Cons: Introductory rate will expire, your credit report will still show that you carry a large balance of revolving debt

Home equity loan or line of credit

Many people are unaware of using a home loan to consolidate debt, but it is actually one of the best ways to tackle debt consolidation if you’re a homeowner. Home loans usually have extremely low interest rates compared to other debt consolidation tools, and can actually improve your credit score by diversifying your credit and removing your debt from undesirable locations like credit cards. Both the loan and line of credit let you borrow against the equity in your home, but a loan is closed-ended with a specific loan amount and payoff period, whereas the line of credit can be kept open to utilize again once you pay down the current amount.

Pros: Low interest rates, can help your credit score, tax-deductible interest

Cons: If you don’t pay – your house could be foreclosed upon, must be a home-owner to take advantage

Personal loan

This is another type of installment loan that can offer favorable interest rates that will stay the same until you pay off the loan. Your rate will be dependent on your credit score, but these types of loans are simple to apply for and typically the approval process is quick.

Pros: Can help your credit score by diversifying debt, quick approval, rate is fixed for the life of the loan

Cons: Your rate is determined by your credit score, you must watch out for predatory lenders in this market

Multi-faceted approach customized to your situation

There are plenty of companies out there that advertise comprehensive debt solution strategies. They take on all of your debt and then you work directly with them to pay it off. There are some reputable companies, but some companies are considered predatory and try to take advantage of their customers. Be careful and do your research!

Another approach is to utilize your local financial institution. Most credit unions would be happy to develop a customized plan to help consolidate your debt and reach your financial goals. For example, AmeriChoice offers a free Personal Financial Analysis by our experts. After the analysis, we recommend a debt restructuring plan to pay off your debt and work to build up your savings.

Types of debt consolidation we DON’T recommend

These debt consolidation tools should only be thought of as a last resort. If you’re facing bankruptcy, it might be time to consider these options, but otherwise, there are plenty of smarter tools you can use to tackle debt.

Life insurance

You may have the opportunity to borrow against your life insurance policy. If the loan is less than the cash value of the policy, you typically won’t have make repayments. However, if you don’t, then you lose the full value of the policy when you need it most. If you pass away, the amount you borrowed will be covered by your policy, with possibly nothing left over for your family.

Retirement funds

You also have the option to borrow from yourself by taking money out of your 401K. However, if you’re not able to repay that amount within an allotted period of time, usually five years, it will be considered an early withdrawal and you will face income taxes and penalties. Plus, if for any reason you must leave your current job, the amount would be due within only 60 days or be subject to early withdrawal penalties.

Learn the best debt consolidation plan for you

Sign up for our FREE personal financial analysis, and our experts will comb through your finances to find the best way to consolidate your debt. Our analysis and recommendations are completely free and require no obligations. We’ll show you how you can restructure your debt to pay it off faster and build of your savings to meet your financial goals. Learn more today!