Consolidating debts sounds intimidating, but it can give people a huge head start worth thousands of dollars

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People looking to consolidate debt have a few different options — all of which are most effective if they’re tried early on in the debt-repayment process.
Personal loans make it easy to consolidate high-interest debt into a new loan with a fixed interest rate, fixed monthly payment, and fixed repayment date. Those with good credit could even qualify for an APR as low as 5.34%.
Balance transfer cards offer an innovative way to pay down debt with zero interest, but their introductory offers don’t last forever.
Many consumers use home equity loans or HELOCs to borrow against the equity in their homes with the goal of paying down debt at a lower interest rate.

There’s one step you should take before getting serious about debt repayment, and that step is consolidating your debts. There are two reasons debt consolidation is so crucial to any debt repayment strategy:

Debt consolidation lets you pay off all your existing debts and start over with a single loan or balance to pay
You could consolidate high-interest debts into a new credit card or loan product with a lower interest rate

It’s easy to see why combining several bills into one could make your life easier: Debt consolidation lets you give up on tracking multiple bills and their due dates. Once the process is over, you’ll be left with a single bill to keep track of and repay each month.

But the real benefit of debt consolidation is in the money you’ll save. That’s because the average credit card APR is over 17%, but the best debt consolidation products may be able to consolidate that debt at 5% or less.

The interest savings you’ll garner depend on how you choose to consolidate your debts in the end. Each of these options can help you pay off debt faster and save money on interest, but only if you use them to your advantage — and they’ll be the most useful if you access them at the beginning of the process.

After all, debt consolidation works best when you use it to reduce the number of bills you’re paying and drastically lower your interest rate from the start.

Personal loans

One of the best options for debt consolidation is a personal loan. These unsecured loans let you consolidate multiple debts into a new loan with a fixed interest rate, fixed monthly payment, and fixed repayment period. This means you’ll know exactly how much you owe each month and exactly when your debts will be paid off.

While your interest rate will vary with a personal loan, a loan marketplace like Credible can help you find a personal loan with an APR as low as 5.34%. Most personal loans also let you borrow up to $35,000, then repay it over three to five years (terms do vary based on the lender you choose).

Click here to learn more about Personal Loans from Credible »

Personal loans are best for:

Consumers who have a lot of debt to pay off over several years
Anyone who wants a fixed interest rate, fixed payment, and fixed payoff date
People who prefer to stop using credit while they pay down debt

Or take a look at personal loan options from our partners:

Balance transfer credit cards

Balance transfer cards, which are also called 0% APR credit cards, offer another smart way to consolidate debt and save money on interest. With a balance transfer card, you can typically score 0% APR or zero interest for anywhere from 9 to 21 months.

You may have to pay a balance transfer fee of 3% or 5% for the privilege, but the fee can be well worth it in terms of the interest you save. Also note that some balance transfer cards don’t charge any fees if you transfer your balances within a specified amount of time.

Imagine you have $5,000 in credit card debt with an average APR of 17%, for example. If you paid a minimum payment of 3% each month, or $150, you would pay down your debt over nearly four years and pay $1,814 in interest in the process.

With the right 0% APR credit card, on the other hand, you could pay off your debts faster and without any interest if you were able to pay slightly more than the minimum before your 0% offer ends.

If you signed up for the Chase Slate, for instance, you would get 15 months with 0% APR on transferred balances. This card also charges no balance transfer fees for balances transferred within the first 60 days. If you were able to pay just $333 per month for 15 months with this card, you could become entirely debt-free with no interest payments or balance transfer fees.

Balance transfer cards are best for:

Consumers who have the discipline to stop using credit cards after they transfer a balance
Anyone willing to attack their debts with force during their card’s introductory offer
People who have a smaller amount of debt they can pay off in nine to 21 months

Home equity loans and HELOCs

Consumers with considerable home equity can also consider using a home equity loan or home equity line of credit (HELOC) for debt consolidation.

Where a home equity loan offers a fixed interest rate and fixed monthly payment, HELOCs work as a line of credit and come with a variable APR and a payment that changes based on how much you borrow. Both options use the equity you have in your home as collateral, however, making them "secured" loans with generous terms.

Home equity loans and HELOCs can be smart options for debt consolidation since they come with much lower rates than credit cards. Home equity products are also very competitive, meaning many come with additional perks such as no origination or annual fees.

The problem with home equity products is that you need a lot of equity in your home to qualify. Both home equity loans and HELOCs typically limit the amount you can borrow to 85% of your home’s value including your primary mortgage and your home equity loan. Also note that you’re putting your home up as collateral for these loans, meaning you risk foreclosure if you don’t repay.

Home equity products are best for:

Homeowners who have a lot of home equity to borrow against
Consumers who can get the best interest rates with a secured loan product
People who have a lot of high-interest debt that will take years to pay down

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