What to know before consolidating your debt this fall

With the average credit card rate sitting at an all-time high, many credit card users are facing significant challenges in terms of the affordability of their revolving debt. About 20% of cardholders are now maxed out, for example, and there has also been a recent uptick in delinquent credit card payments. If you're facing similar issues, it's important to address your high-rate debt before it gets worse.

But the cardholders who are struggling aren't the only ones who may want to take steps to resolve their card debt. Given the current high-rate environment, even those who aren't yet facing dire circumstances may want to be proactive about dealing with their credit card debt before it becomes unmanageable. Fortunately, there are a few good options for doing so.

One is debt consolidation, the process of rolling multiple high-rate debts into one lower-rate loan. Consolidating your debt can offer a path to lower interest charges and simplified payments, making it easier and more affordable to pay off what you owe. But while debt consolidation can be an effective tool for many, there are several key factors to consider before deciding to pursue it this fall.

Learn more about your debt consolidation options here today.

What to know before consolidating your debt this fall

Here are a few important things to note if you're planning to consolidate your high-rate credit card debt soon:

There could soon be a drop in debt consolidation loan rates

There's a strong possibility that debt consolidation loan rates could decrease soon. Now that inflation is cooling, the Fed is widely expected to make its first rate cut of the year when it meets in September. If this occurs, it could have a ripple effect on the lending market, potentially leading to more favorable rates for borrowing products, including debt consolidation loans.

This potential rate reduction presents an interesting dilemma. On one hand, waiting for lower rates could result in significant savings over the life of the loan — so it could be worth it to consider. On the other hand, delaying action means continuing to accrue high-interest debt in the meantime. In turn, it's important to carefully weigh your circumstances and the urgency of your debt situation against the potential benefits of waiting for a rate cut before deciding what route to take.

Find out how the right debt relief company could help you with your high-rate card debt today.

There are alternative loan consolidation options to consider

While traditional debt consolidation loans are a common choice, they're not the only option available to you. In today's high-rate environment, alternative methods of debt consolidation are also worth exploring. One such option is home equity borrowing.

For homeowners who have built up significant equity in their property, tapping into this resource can be an effective way to consolidate debt at a lower rate. Because they're secured by the equity in your home, both home equity loans and home equity lines of credit (HELOCs) often come with lower interest rates compared to unsecured debt consolidation loans. 

That said, your home is collateral in this situation. As such, you need to understand the risks that using home equity to consolidate debt comes with, including the possibility of losing your home if you're unable to keep up with payments.

A debt consolidation program could make more sense

A lesser-known but potentially valuable option to consider is a debt consolidation program. These programs are typically offered by debt relief companies and function similarly to taking out a debt consolidation loan on your own. When you enroll in a debt consolidation program, your existing unsecured debts are still consolidated into one loan, which usually comes with a lower interest rate than your credit cards.

The key difference is that with a debt consolidation program, you borrow through one of the debt company's third-party partner lenders. These lenders are well-versed in working with borrowers who have high debt-to-income ratios or other minor credit issues, so there may be more flexibility in their lending parameters as a result. 

This can make debt consolidation programs an attractive option for those who fall into a financial middle ground – not quite qualifying for traditional loans but not in severe enough distress to require more extreme debt relief measures. In turn, these programs can be particularly beneficial for borrowers who may not meet traditional lending standards but have a high enough credit score that they're not ready to consider more drastic measures.

The bottom line

Debt consolidation can be a powerful tool for regaining control of your finances, especially in today's high-interest environment. As we head into fall, the potential for rate cuts and the availability of diverse consolidation options make it an opportune time to consider this strategy. Still, it's crucial to approach debt consolidation with a clear understanding of your options, a realistic assessment of your financial situation and a long-term plan for financial stability. By doing so, you can make an informed decision that sets you on the path to a healthier financial future.