Keeping your finances organized is a good strategy in any type of environment. But in times like these – with inflation still running rampant and the Fed months away from ending its interest rate hikes – debt consolidation can be a particularly valuable strategy. Here’s a look at how debt consolidation works, why it’s especially timely now and how you can go about finding the best possible deals.
What Does Debt Consolidation Really Mean?
Debt consolidation simply means moving all of your debt into one loan. In some cases, this can mean a personal loan, while in others, a credit card may actually be the better option.
What Are The Main Benefits of Debt Consolidation?
There are a number of benefits of debt consolidation. For one, it makes managing your finances much easier, as you only have one loan to monitor and one payment to keep track of every month. But done properly, you can also end up saving money with a good debt consolidation plan. Generally, debt consolidation is best undertaken when you can move high-interest debt to a low-interest obligation. For example, if you took out some personal or business loans at a 10% interest rate and you can swap that for a 5% loan, you can save a significant amount of interest every year.
What Is Debt Consolidation a Particularly Timely Strategy Now?
It may not seem to be the best time to consolidate a debt when interest rates have been rising steadily all year. But you may actually have a window now to take advantage of one particular debt consolidation strategy.
Credit card companies have been raising their interest rates all year, right along with the Fed. But there are still a number of available cards that offer a 0% introductory interest rate on balance transfers, with some grace periods lasting as long as 21 months. One debt consolidation strategy is to take your existing high-rate balances and transfer them to a 0% credit card for 12, 18 or even 21 months. The idea behind this strategy is that rates will likely fall from current levels 12-21 months from now. For now, you’ll enjoy a 0% interest rate, but if you can’t pay it off entirely by the end of the promotional period, you can likely get a traditional loan with a lower interest rate than you might have now.
If you’re considering this route, you may have limited time. As interest rates continue to rise, fewer card issuers may be willing to offer 0% introductory rates. Although no one knows when that window will close, it generally ends in periods of higher rates.
Bear in mind that this is definitely an aggressive strategy, as no one knows for certain where interest rates will be months down the road. But working in consultation with a personal loan advisor, you may be able to determine if this is a good strategy for you.
Best Debt Consolidation Ideas
The best debt consolidation ideas are ones that will save you time and money. In a falling-rate environment, this usually means swapping a higher-rate loan for a lower-rate one. But if you took out a loan over the past couple of years, current rates are likely higher than the one you already have.
In this type of environment, the more aggressive credit card strategy outlined above may be your best option, depending on the type of borrower you are. If you can score a credit card with an extended 0% balance transfer option, you can effectively knock your interest costs down to zero, which may even help you pay off the debt faster.
Here are two of the best 0% balance transfer credit card offers as of Nov. 2022:
Citi Simplicity® Card
The Citi Simplicity® Card offers a 0% introductory interest rate on balance transfers for a whopping 21 months. Although not beneficial for debt consolidation, that 0% interest rate also applies to purchases, although for only 12 months. The Citi Simplicity® Card also charges no annual fee and has no late fees or penalty rates, making it an extremely cost-effective way to consolidate higher-rate debts. Note that there is a 3% fee for any balance transfers in the first four months, however, with that fee jumping to 5% thereafter.
Wells Fargo Reflect® Card
In one sense, The Wells Fargo Reflect® Card one-ups the Citi Simplicity® Card because its 0% introductory interest rate applies to both balance transfers and purchases for the full 21 months, as long as you make on-time payments during the first three months that you own the card. As with the Citi Simplicity® Card, the fee for balance transfers is 3%, jumping to 5% 120 days after you open the account.
About the Author
David Halverson
With over 10 years of direct experience in the lending space, Lendzi’s leaders have established over 60 partnerships with top lending institutions and have overseen an excess of $500 million raised for entrepreneurs across America.