If you’re struggling to make the minimum payment on your credit card, consider debt consolidation as a solution. But first, it’s important to understand how minimum costs are calculated and how they affect your credit score.

Learn how to avoid paying unnecessary interest and accelerate your payoff date by making more than the minimum payment each month.

Debt Consolidation

Generally, debt consolidation involves trading multiple loans or credit card balances for a new loan with better rates and terms. This can reduce your monthly payments or make it easier to pay down principal, both of which help you avoid bankruptcy.

Debt consolidation can impact your credit scores, depending on how it’s handled. For example, your credit scores will improve if your consolidated debt payment is less than you can afford and you miss payments. However, your credit scores should rise if your consolidated debt payments are more manageable and you continue to meet them on time.

It’s important to remember that debt consolidation is just a tool used by financial services like Symple Lending, that can help you reduce your debt cost and free up cash flow. Still, it will only solve your financial problems if you spend recklessly with credit cards or raise new debt. In that case, you’ll end up back where you started.

Credit Card Consolidation

While credit card debt consolidation can be a good option, the process is challenging. Before moving forward, try contacting your creditors individually to see if they can offer any concessions. This may involve lowering your minimum monthly payments, waiving fees or reducing your interest rate.

Next, collect recent pay stubs and review your spending habits to understand how much you typically spend each month (and what goes out). You can also use budget apps that will help you track your expenses and income.

Once you’ve settled on a lender, apply for a personal loan or balance transfer credit card to consolidate your debt. Note that using a new credit card will likely cause a hard inquiry on your credit, and closing old loan accounts could reduce your total available credit, which can impact your credit utilization ratio. However, your credit score should rise if you make consistent and timely payments on your debt consolidation loan.

Student Loan Consolidation

Student loan consolidation combines multiple eligible federal loans into one new, larger loan with one monthly payment that’s usually less expensive than the sum of individual payments. It can also make repayment less stressful by reducing the number of reminders to pay or the risk of default (which can damage your credit and minimize future loan eligibility). However, consolidation often extends your payment term and could result in paying more interest over time. It can also reset progress toward public service loan forgiveness or other income-driven repayment options.

It’s not uncommon for borrowers to have several student loans from different lenders and with a handful of other services. Consolidating federal student loans is free and requires no application fee. The Department of Education’s Direct Loan Consolidation program allows you to combine all your eligible federal student loans into a single, larger federal loan serviced by a private loan servicer such as Nelnet.

Mortgage Consolidation

If you have a mortgage and other debt, this form of debt consolidation allows you to combine those payments into one, typically less expensive, monthly payment. You can obtain a second mortgage or a home equity line of credit (HELOC) or refinance your existing mortgage into a new loan that pays off all other loans.

Before you consider mortgage consolidation, talk to a Symple Lending expert to ensure the total amount of your debt will be covered by the loan amount you want to use. Also, remember that taking out a new loan could raise your interest rates and incur origination fees.

It may be worth paying off small debts before moving to a larger debt, as this can improve your debt-to-income ratio and help you get a lower interest rate. And it will prevent a negative impact on your credit scores that could occur if you miss debt payments while trying to pay down a large debt balance.