Debt Consolidation Options for Millennials
Posted: Aug 04, 2019
Millennials today face extraordinary financial pressure. Not only are education costs higher than ever, credit card interest rates soaring to almost predatory levels, and housing costs skyrocketing, but many college graduates and professionals with higher degrees land entry-level jobs with salaries that hardly pay the rent, let alone defray monthly student loan payments.
Debt consolidation is one solution to the high interest rates and mounting debt that millennials face. At its most basic level, this entails working with a debt consolidation company or working with creditors to make special arrangements for your payments. Typically, this involves rolling all of your debts into a single amount owed, so that you make one single payment each month rather than diverting several different payments to various creditors.
There are several types of debt consolidation, but the most common include the following:
- Credit card consolidation – Some credit card companies allow consumers to transfer balances from one card to another.
- Personal bank loans – Many banks offer loans with lower interest rates, which enable debtors to pay down their higher-interest credit card debts.
- Consolidation loans – Banks or other lenders can help debtors wipe out balances on their credit cards by creating a single lump sum and monthly payment amount. This option is available for student loans as well.
- Credit counseling – This option involves engaging a company or agency to represent you in negotiations with your creditors. Your agent will communicate with your creditors on your behalf to lower your total amount owed, your interest rates, or your monthly payments and in some cases, even forgive portions of your debt.
Before you consider stepping into debt consolidation, however, you should first take a few critical steps.
- Check your credit. Not only will you be hard-pressed to lock down a good interest rate if your credit is bad, but you should ensure there is no suspicious activity on your report before you submit your numbers to a potential lender.
- Get a job. Even if you’re a college student working for minimum wage at a coffee shop, developing at least a small revenue stream will help you attract lenders, lock down a better rate, and pay down your debt more quickly.
- Get your accounts current. Have you recently missed any payments? Make them! This will keep your credit report clear and will ensure you start your consolidation process with a clean slate.
- Make a list of all your debts. Before you engage a credit counselor or other advisor to help you consolidate your debts, gather a list of your debts, including the creditors, outstanding balances, interest rates, and payment schedules for each.
- Keep your accounts open. Before you engage a professional, refrain from closing out any of your accounts. Keep them open until you start the consolidation process.
Changes Beyond Debt Consolidation
Although debt consolidation can help you get out of a sticky situation, true change comes from adjusting your behavioral patterns when it comes to spending and borrowing. Figure out the root of the problem, the habits that got you into debt in the first place, and resolve to change them. For instance, quit the expensive gym, sell your car and purchase a used model, move to a cheaper apartment, and refrain from buying items that you don’t need simply because they are on sale.
Getting out of debt – and staying out of it – requires a concerted daily effort. And while you’re still young, it’s critical to start developing healthy financial habits that will carry you throughout your adulthood into retirement. Commit to the long haul, and in time, you will not just become debt free: you can gradually build wealth and pave a path to financial freedom.
Tim has a finance degree from Csuf with 15 years of combined experience in CountryWide Debt Relief, a debt consolidation company.