How To Consolidate Your Debt [Ultimate Guide]

The clearest yet most strenuous path toward financial freedom comes with the proper management of personal, professional and recreational debts. However, managing debt is much easier said than done. 

From credit cards to auto loans to home mortgages, acquiring and balancing debt is fundamental to our contemporary lifestyle. With our busy lifestyles, finding time to manage the intricacies of these debts becomes frustrating and laborious. 

Taking some time to understand exactly why and how to consolidate debt is an excellent way to boost financial literacy and sketch the blueprints for a lifelong financial action plan.

What Is Debt Consolidation?

Debt consolidation is the act of consolidating all outstanding debts into a single monthly bill. 

A specific set of high-interest debts are more commonly combined through debt consolidation services, including:

  • Hospital or other medical bills
  • High-interest credit card debts
  • Payday loans
  • Unsecured debt, including personal loans

The practice of debt consolidation rolls all outstanding debt balances into one payment that is subjected to an applicable interest rate. For example, instead of holding two credit card payments at 15% interest, an auto loan at 5% interest, and a student loan payment at 4.5%, at San Francisco Federal Credit Union, members can consolidate their debt into a single monthly payment, as low as 3.49%.

In many cases, in addition to lower rates, a debt consolidation loan often has more manageable terms that allow consumers to save money and pay off their debts faster.

How To Consolidate Debt Over Time – An Actionable Guide

The only way to effectively succeed at consolidating your debt is to ensure that high-interest loans or related unmanageable debts are never utilized again. To do this, you must consider following a highly vetted plan of financial action. 

Not only is it recommended to learn the basics of how to consolidate debt, but it is imperative to find the right money management strategy for your lifestyle.

1. Begin To Establish A Sinking Fund For Emergencies

If unforeseen medical emergencies, vehicle repairs, or home damages occur, have a well-stocked sinking fund that will help during these times of crisis. This allows you to avoid smaller debts that slowly build up over time.

2. Establish Clear Financial Goals

The decision of what to do with your hard-earned money lies with no one else but yourself. Begin to formulate some goals or specific roles you would like your finances to fill.

When would you like to retire? What would your dream home look like? Is there a vehicle that you would love to own within the next few months or years? Begin establishing checkpoints early on to help you focus on paying down your debts and striving towards the future.

3. Pay More Than The Minimum Balance

As straightforward as it sounds, one of the best methods of paying off your debts is to pay more per month than what is minimally required. This process can save you quite a bit of money in interest as well. 

Before trying this technique out, be sure to check for any prepayment fees or penalties and avoid costly extra payments that can be avoided.

4. Establish A Solid Monthly Budget

Writing up and sticking to a monthly budget looks much easier on paper than it is in practice.

Add up your monthly income sources, making an exhaustive list of bills and payment categories in which to assign your money. Remember that it is very important to include savings accountsretirement funds, and investment accounts in your calculations. 

Remember that each month will look slightly different depending on your life milestones, seasonal events (such as birthdays or holidays), and personal hobbies that force some categories to measure higher or lower. Sticking with your initial plan for a few months and tweaking as you go is highly recommended.

How To Consolidate Debt With Convenience and Dignity

Eliminating collection agency calls, restoring peace of mind, and reducing monthly payments are just some of the benefits that debt consolidation loans can offer. By taking their dreams into their own hands, those seeking debt consolidation can quickly address their financial situation and transform their stress into a complete success.

By your side will be SFFedCU’s debt consolidation solutions, helping consumers restore their grasp on the wealth they’ve worked so hard to achieve. Offering some of the most valuable advice and services on how to consolidate debt, SFFedCU is passionate about assisting our members in reaching their long and short term financial goals.

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