Understanding Debt Consolidation: Tips and Advice

If life has left you buried under a mountain of debt, you might be considering using debt consolidation to get out from under it all.

Q: I’m up to my ears in debt, and I’d love a way out. I’m strongly considering debt consolidation. What do I need to know before I move ahead?

A: Debt consolidation is the process of moving several (possibly) high-interest debts into a new loan or line of credit. Debt consolidation can help you pay off your debt quicker, with less money going toward overall interest payments.

Here’s what you need to know about debt consolidation:

What are the benefits of debt consolidation?

Saving on interest payments. The primary benefit of debt consolidation is saving on interest costs. Long-term debt with a high interest rate can cost thousands of dollars in interest payments over the life of the loan. That’s money you may not need to pay! Moving that debt to a new loan or line of credit with a lower interest rate, or sometimes no interest rate at all, can translate into significant savings.
Simplified payments. With just one monthly payment to make, managing your debt will be a lot easier.
Fixed payment timeline. Debt consolidation often means having a fixed payment timeline. This makes budgeting easy and allows you to make long-term financial goals, with a fixed date for when you will be debt-free.
Boost your credit score. If you’ve been falling behind on your monthly payments, moving your multiple debts to a single low-interest loan can help to boost your score.

What are the disadvantages of debt consolidation?

May prolong the payment timeline of the debt. Moving debt to a new loan can sometimes involve extending the term of the loan. This means the borrower will be in debt for longer.
Doesn’t eliminate irresponsible spending habits. If overspending and irresponsible money management is what landed the borrower in debt in the first place, consolidating debt on its own will not solve the problem.
Lower interest rate may not last. Many low- or no-interest credit cards only offer these features as a temporary promotion. Once an introductory period ends, the borrower will be hit with high interest rates.

How can I consolidate my debt?

You have several options for debt consolidation, each with its own pros and cons.

Personal loan. Taking out a personal loan from Zing will enable you to pay off all your outstanding loans immediately and move your debts into one low-interest loan. Personal loans may have origination fees and other charges. Also, since they’re unsecured, the interest rates on these loans can be high. Lucky for you, though, as a member of Zing Credit Union you have access to personal loans with no origination fees and interest rates as low as 9.95% APR*. Click to learn more about our Personal Loans.
Balance transfer. Moving your debt to a new credit card with a low interest rate or a zero-interest offer will make it possible for you to pay off your debts immediately. The obvious disadvantage with opening a new credit card is that it can cause you to rack up a new credit card bill with your expanded available credit. Also, as mentioned, you may be hit with
high interest rates once the introductory period ends. A third downside to going this route is that credit cards have no end date, which means you may not achieve that debt-free life anytime soon. Fortunately, as a member of Zing, you can take advantage of our 12.99% APR credit cards to help you get rid of your debt quicker.** Plus our card doesn’t have a balance transfer fee, which many other cards have. Learn more about our credit card now.
HELOC or HEL. A home equity line of credit or home equity loan uses your home as collateral for an open line of credit or a fixed-term loan. The drawback of using your home as collateral to help you pay off debt is that you risk losing your home to foreclosure if you fail to meet your payments. Also, if the value of your home drops, you may end up owing more on your home than what it is worth. Finally, repayment terms for HELOCs and HELs can be upward of 10 years. As secured debt, interest on HELOCs and HELs will be affordable and may provide you with significant savings. Interest on home equity loan products is often tax-deductible as well (consult your tax advisor). Learn more about our Home Equity loans today.

It is important to note that all loans are dependent upon credit and income verification.

If you’re ready to consolidate your debt, we can help! Call, or stop by today to discuss your options. You can also start an application online!

What if I don’t qualify for these loans, but still want help?

We offer lots of resources like one-on-one virtual financial coaching, online e-courses to kick-start your path to debt consolidation.

Schedule a virtual financial coaching session today!

Truth In Savings Disclosure

TRUTH IN SAVINGS DISCLOSURE

Except as specifically described, the following disclosures apply to all the accounts.

Rate Information. The dividend rate, or interest rate, and annual percentage yield on your accounts are set forth on the reverse side. The annual percentage yield is a percentage rate that reflects the total amount of dividends/interest to be paid on an account based on the dividend/interest rate and frequency of compounding for an annual period. For Certificates of Deposit and IRA Certificates of Deposit, the interest rate and annual percentage yield are fixed and will be in effect for the term of the account. The annual percentage yield is based on an assumption that interest will remain on deposit until maturity. A withdrawal will reduce earnings.
Nature of Dividends. Dividends are paid from current income and available earnings after providing for the required reserves. The dividend rates and annual percentage yields are the prospective rates and yields that the Credit Union anticipates paying for the applicable dividend period.
Compounding and Crediting. Interest and dividends will be compounded and credited as set forth on the reverse side. The dividend/interest period for each account is also set forth on our Rate and Fee Schedule. The dividend/interest period begins on the first calendar day of the period and ends on the last calendar day of the period.
Balance Information. The minimum balance required to open each account is set forth. Interest is calculated by the daily balance method which applies a daily periodic rate to the principal in the account each day.
Accrual of Dividends. Dividends will begin to accrue on cash deposits on the business day you make the deposit to your account. Dividends will begin to accrue on noncash deposits (checks) on the business day you make the deposit to your account. If you close your account before accrued dividends are credited, accrued dividends will not be paid.
Account Limitations. The account limitations for each account are set forth in our Membership and Account Agreement
Your account will mature on the maturity date set forth on your account receipt or renewal notice.
Early Withdrawal Penalties. A penalty may be imposed if you withdraw any of the certificate funds before the maturity date or the renewal date, if this is a renewal account.
Amount of Penalty. For Certificates of Deposit and IRA Certificates of Deposit the amount of the early withdrawal penalty for your account is 90 days’ interest for a term of 12 months or less, and 180 days’ interest for a term over 12 months.
How the Penalty Works. The penalty is calculated as a forfeiture of part or all of the interest that have been earned on the account. This penalty applies to earned interest and principal.
Renewal Policy. Certificate of Deposit accounts will automatically renew for another term upon maturity. You have a grace period of seven days in which to change or withdraw the funds without being charged an early withdrawal penalty.
Exception to Early Withdrawal Penalties. At our option, we may redeem the account before maturity without imposing an early withdrawal penalty under the following circumstances:
- When an account owner dies
- or is determined legally incompetent by a court
- or other body of competent jurisdiction.
Nontransferable / Nonnegotiable. Your account is nontransferable and nonnegotiable. The funds in your account may not be pledged to secure any obligation of an owner except obligations with the Credit Union.
FEES FOR OVERDRAWN ACCOUNTS. Fees may be imposed on each check, draft item, ATM card withdrawal, debit card withdrawal, debit card point of purchase, preauthorized automatic debit, telephone initiated withdrawal or any other electronic withdrawal or transfer transaction that is drawn on an insufficient available account balance. The entire balance in your account may not be available for withdrawal, transfer or payment of a check, draft or item. You may consult the Funds Availability Policy for information regarding the availability of funds in your account. Fees for overdrawing your account may be imposed for each overdraft, item or transaction. If we have approved an overdraft protection limit for your account, such fees may reduce your approval limit. Please refer to the Rate and Fee Schedule for current fee information.

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