Debt Consolidation in Connecticut – 9 Things You Must Know to be Debt-Free

According to the World Population Review data, Connecticut ranks eighth with a cost of living index of 121.6 (21.6 points higher than the national average of 100).

This higher-than-average cost forces many Connecticut residents to use credit cards and other loans to help pay their bills. The average Connecticut household now owes over $6,040 in credit card debt.

On top of the high living cost, Connecticut residents also suffer from seasonal natural disasters such as hurricanes and flash floods. These events further compel residents to tighten their budgets to take on extra expenses.

So, with the combination of high costs and seasonal disasters, it's no wonder that climbing out of debt can be challenging.

But, there is a solution. If you're suffering from the same dilemma, there is a way out - it's Debt Consolidation.

In this article, we will talk about how debt consolidation in Connecticut can help you get out of your financial pickle and everything you need to know to make the strategy work.

Debt Consolidation in Connecticut - Overview

Debt consolidation in Connecticut is the process of combining more than one debt obligation into a single loan. You use the new loan to pay off all other debts and then focus on making payments on the new debt until it's paid off in full.

With a favorable term structure of the new loan, such as a lower interest rate, tenure, etc., you will be able to save on interest.

Example:

Say you have two credit card debts amounting to $10,000 ($5000 each) with a 16.65% APR on both. If you pay it off in three years, you will need to pay $2,656.53 in interest.

But, if you take out a new $10000 loan with 8.73% APR to get rid of your two credit card debts and focus on paying off the new loan, you will only need to pay $1,281.09 in interest, saving $1375.44.

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Types of Debt That You Can Consolidate in Connecticut

Debt consolidation in Connecticut can help you better your financial life by making monthly payments more affordable. But, it's not a viable solution for all kinds of debt.

Here are three types of debts that you can consolidate -

• Credit Card Debt - Using a low-interest personal loan for credit card debt consolidation can save you as much as a thousand dollars on interest. With the less interest rate, you may also be able to pay off your debt faster.
• Student Loans - Consolidation can be a great option if you have private student loans. You may be able to secure a favorable interest rate on your new loan, potentially saving a lot.
• High-Interest Personal Loans - You can get a competitive interest rate on personal loans if you have a good credit score. Otherwise, you'll likely receive a hefty rate bumping your monthly payment. In the past, if you've taken out personal loans with a high-interest rate, you may be able to avoid spending extra by securing a new loan with a lower APR.

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When is Debt Consolidation in Connecticut a Smart Move?

Debt consolidation can be an intelligent financial decision only under the right circumstances.

You should consider consolidating your debt if you have:

• Large debt - A large amount of debt you cannot pay off. (The debt should be lower than 50% of your income)
• High credit score - A credit score high enough to qualify for a lower interest rate credit card or debt consolidation loan.
• Sufficient income - To cover the monthly payments of your new debt.

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When is Debt Consolidation Not Worth it in Connecticut?

Debt consolidation in Connecticut isn't the right strategy for all your debt problems. Here are some circumstances that undermine its effectiveness -

• High spending habits - If you have a habit of excessive spending, using your credit cards, debt consolidation may not be suitable for you - you will risk falling into a debt trap again.
• Small debt - If your debt load is small and you think you can pay it off in six months to a year, you don't need debt consolidation. You'll save only a negligible amount by consolidating. Instead, you can try DIY debt payoff methods like debt snowball or debt avalanche.
• Debt more than half of your income - If your total debt is more than 50% of your income, and you have no hope of repaying it (even with reduced payments), you'll be better off seeking debt settlement.

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Debt Consolidation Options in Connecticut

There are three common ways to consolidate your debts. The success of each of these depends on whether you have an income large enough to cover basic expenses (housing, food, transportation) and make monthly payments to eliminate the debt.

If you miss even a few monthly payments, you'll render the consolidation useless.

Here are the three ways you can get a loan to pay off your debt -

Credit Card Balance Transfers

A balance transfer is a process of transferring many credit card debts to a single card with a 0% interest rate. But, you must have a strong credit score of 680 or higher to use this strategy.

Pros of Balance Transfers

• You can pay off your consolidated debt at 0% interest during the introductory period of your new card.
• The strategy will simplify the payment process, especially if you have multiple debts on multiple cards.
• Getting a new card to consolidate your credit card debt might offer travel or other monetary perks.

Cons of Balance Transfers

• The strategy is only viable for existing or potential customers with high credit scores, 680 or higher.
• You must be approved for enough credit limit on your balance transfer card to handle all your debt.
• Balance transfer cards include a fee of 3%-5% on the amount of debt shifted.
• If you fail to pay off your consolidated debt during the introductory period, the creditor will subject you to the high-interest rate customarily charged.

Personal Loans

You can use personal loans to combine many balances into a single monthly payment with a lower interest rate and pay off your debt. These loans don't demand collateral and are available through banks, credit unions, and online lenders.

Pros of Personal Loans

• Unlike credit card interest rates that vary according to your payment history, a personal loan comes with a fixed interest rate. You'll know what you must pay each month and have a payoff date.
• A personal loan is unsecured, so a creditor won't have any collateral to seize if you fail to make timely payments.
• You can find many lower-interest loans with good enough credit to pay off your debt.
• If your financial situation is in order, in most cases, you can pay off the loan earlier than your payoff date without extra fees or penalties.

Cons of Personal Loans

• Personal loans for debt consolidation are most useful for those with good credit. If your score is less than 660, you'll end up paying high-interest rates, negating the value of consolidating your debt with a personal loan. If your credit score dangles below the 580 mark, you might not qualify for a loan.
• You'll need to pay origination fees for personal loans, which can use up money that should go to pay down debt. Usually, the fees range between 1% and 5%, but sometimes they can be as much as 10%.
• If you have several credit card debts and you want to use a personal loan to combine and pay them off, you'll need to stop using your cards. If you continue using your credit cards, your debt will worsen, leading you to default.

Home Equity Loans and Lines of Credit

A home equity loan or home equity line of credit (HELOC) can be beneficial if you're looking for low-interest consolidation loans.

However, taking this loan to help pay off your debt is risky.

Home equity loans or HELOCs are secured at low interest, which means it uses your house as collateral. If you default on your payments, your creditor can take possession of your property.

Pros of Borrowing Against Your Home

• You'll get a much lower monthly interest rate.
• They have fixed monthly payments.
• As a home equity loan/HELOC is secured, you might not need a high credit score to get a low-interest rate.

Cons of Borrowing Against Your Home

• A foreclosure is possible if you fail to make payments on time.
• To qualify, you must prove you have enough income to pay back your borrowed money and an acceptable credit score, usually above 680.
• Credit score determines whether a lender will provide low-interest consolidation loans and the amount you can borrow.
• Equity loans and HELOCs require additional fees and costs. Occasionally lenders may waive these fees.

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DIY Or Debt Consolidation Companies in Connecticut - Which One Is Right For You

On paper, debt consolidation is an easy strategy that you can DIY. All you need is good credit, a low debt-to-income ratio (ideally 21% to 35%), and the right amount of debt.

But, in reality, there are a lot of pitfalls - like seeing paid-off credit cards as an invitation to binge-spend again - that you must avoid making the strategy a success.

A checklist governs every successful DIY debt consolidation. Here is what you need to follow -

• Make a list of all the debts you want to merge into one.
• Write down the name of each lender, the total amount owed, the interest rate, and the minimum monthly payment you owe to each.
• Get a copy of your credit report from one of the three major credit-monitoring agencies. Each one owes you a free report every week.
• Note your monthly income and consider if you can make more with side jobs.
• Make a budget and identify expenses you can cut out or at least trim (streaming services, entertainment, dining out, recurring donations).
• Find out the amount of money you have after paying your bills.
• Stop using your credit cards.
• Do your research to determine which debt consolidation method is best for you.

If all these steps sound overwhelming, you can look for debt consolidation companies in Connecticut.

Top-rated debt consolidation companies can assist you through all these steps.

Besides, suppose your debt has gone to collections. In that case, the company can negotiate with the debt collection agency and develop a repayment plan to help make easy monthly installments and avoid lawsuits and extra fees.

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How to Choose the Best Debt Consolidation Company in Connecticut

Here are some checkpoints that you should go through to choose a reputable debt consolidation company -

• Make a list of the top 5 debt consolidation companies that interest you.
• Find out how long the companies have been around and their track records. Typically, a longer track record of success indicates a company's ability to work well with creditors.
• Check to see if your company of choice has the necessary licenses in the states where they do business.
• The Better Business Bureau (BBB) website is another good way to find where a company's service excels and where it falls short. The BBB uses an A-F scale to rate companies.
• Check to see if the debt consolidation companies in Connecticut are transparent with their fee structure. Although fees may differ by state, a company should provide an average cost.
• The company you select must have a long history of satisfied customers. So, besides fishing for companies with good ratings on Better Business Bureau and Trustpilot, you should also read the debt consolidation companies' reviews.
• Trustworthy agencies provide a free initial counseling session. Look for a company that offers educational resources on budgeting and debt management.

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Debt Consolidation Rules and Regulations

If you decide to work with a debt consolidation company in Connecticut, here are some basic rules and regulations that you must know -

• Disclosure and collection - Any company that accepts profit for their debt consolidation services must disclose their entire fee structure and refund policy. They also cannot collect the whole fee upfront.
• The company must establish a timeline for debt consolidation - The debt consolidation company must estimate and inform you of the time you can expect their program to last.
• Savings from debt consolidation must be stated accurately - The company must provide accurate figures on how much money you will save with its debt consolidation program.
• Include the impact of fees - The company must include the impact of their fees on the claimed savings.
• Be transparent about the consequences - The company must educate you about the implications if the debt consolidation program doesn't go right.

Source: Federal Trade Commission

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Debt Consolidation FAQs

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