Illinois debt consolidation can help over-indebted consumers get out of debt quickly. Recently, U.S. consumers added a staggering $45.7 billion in credit card debt. Financial experts project that the net addition will hit a record-setting $100 billion come the end of the year.
For Illinois consumers, perhaps the better-than-average credit score and economic struggles motivated the increased appetite for credit card debt. Illinois still ranks 16th in credit card debt per household despite a drop in the national average from the second quarter of 2020 ($8,324).
Certainly, the COVID-19 pandemic changed how Illinoisans spend and pay their debts, particularly credit card bills. Despite a fall in credit card delinquencies and revolving debt, the truth is that credit card holders in the state have a mountain of credit card debt. So, what next for an Illinois consumer who is struggling to keep up with payments for credit card bills and other unsecured debts?
Strategies for Managing Multiple Credit Card Debts
Multiple credit card holders often lose money on interest when making payments on their individual accounts. What’s more, keeping up with payments for each account can be hectic. For such consumers, debt consolidation can be a sound approach. Debt consolidation bundles several high-interest debts such as credit card bills into a single, low-interest payment.
Debt consolidation is particularly ideal for consumers with a manageable debt amount and good credit. This approach helps them reorganize debts with different payments, interest rates, and due dates. Ultimately, they can pay off their debt faster and save money on interest. Below, we take a look at options for debt consolidation Illinois residents can explore, highlighting the benefits and risks for each.
Illinois Debt Consolidation Loans
Consumers seeking debt relief can apply for a debt consolidation loan and use the money to pay off all their debt. Even with bad to fair credit, individuals may qualify for an unsecured personal loan, albeit at a relatively higher interest rate. Banks, credit unions, and online lenders readily offer debt consolidation loans that come with a lower APR.
Depending on the lender, consumers can reap various benefits by securing a debt consolidation loan. Credit unions may offer their members loans with flexible terms and lower rates, especially those with bad or fair credit. In fact, federal credit unions charge a maximum APR of 18%. Banks provide loans with competitive APRs for good-credit consumers and may also offer their existing customers larger loan amounts.
The ideal Illinois debt consolidation loan will come with low interest, a comfortable repayment term, and funds enough to pay off all your debts. These loans are risk-proof as you don’t have to use any asset as collateral to qualify. Illinois debt consolidation companies and other lenders also offer these loans at lower, fixed interest rates, meaning that the payment amount is the same each month. However, you’ll need excellent credit to get a large loan at a low rate.
Balance Transfer Credit Card
Credit card holders juggling different accounts may use a balance transfer credit card for debt relief. This option lets you transfer multiple credit card balances to one card that comes with zero interest for an introductory period. While this is a DIY debt consolidation strategy, you’ll need good to excellent credit to qualify.
Ideally, you should pay off all your debt before the grace period expires to save on interest. Once this introductory period expires, the prevailing interest rates apply. Using a balance transfer card also simplifies your payment process as you are left with a single balance. However, most credit card issuers charge a 3-5% fee on the amount transferred, which adds to what you owe.
Debt Management Plan
Consumers who are buried in debt in the state may also benefit from Illinois debt consolidation programs like debt management plans. With a debt management program, you don’t need to take out a loan or apply for a balance transfer card. A credit counselor negotiates with your creditors for reduced interest rates on credit card debt and creates a suitable payoff plan.
Consumer credit counseling is offered by nonprofit credit counseling agencies. Besides lowering the interest rate on your debts, a debt management program will stop all collection calls from your creditors. The ideal debt management plan Illinois residents can enroll in will also provide financial education and insights on how to best manage finances. However, you may have to pay monthly fees for the management of your plan.
Home Equity Loan or Line of Credit (HELOC)
Another option for debt consolidation in Illinois is taking out a loan against your home equity and using it to pay all your debts. Home equity loans and HELOCs are secured loans that can potentially lower your interest rates on payments. With a HELOC, you get a credit line to draw from at a variable rate. You can also borrow a lump sum (home equity loan) at a fixed rate and use the proceeds to pay off your outstanding debt.
Good credit isn’t key to qualifying, but these home equity products have their inherent risk. Since they are secured by your home, you may lose your home if you are unable to make payments. What’s more, the long repayment terms and funding timelines of home equity products could mean paying more in the long run.
These loans are viable options if you’re looking to organize multiple debts and bring them down quickly. Employees who have a 401(k) plan can borrow from their balance and pay off their credit card debts. You can also withdraw money from an IRA or Roth IRA to pay off your debts.
While viable options for Illinois debt consolidation, these loans have their cons. IRA withdrawals will attract penalties if you are below 59 ½ years. Borrowing from your 401(k) retirement plan could also reduce your retirement fund. Further, hefty fees and penalties may accrue if you can’t repay your loan.
Debt consolidation helps you roll multiple debts into a single, monthly payment. It can be helpful particularly to consumers with good credit and whose monthly debt payments don’t exceed half of their monthly gross income. Keep in mind that debt consolidation isn’t an antidote for your debt problems. To effectively manage your debts, you need to create a budget and stick to it and avoid excessive spending. However, if you’re already caught up in debt, debt consolidation can pull you out of that hole.