Get the app

October 31, 2022 | Article | 3 min Personal insights

If you’re feeling overwhelmed juggling payments, consolidating these debts into one loan—with one monthly payment—may be the answer. Debt consolidation is just one way to handle your finances, easing the pressure on your bank account.


What Is Debt Consolidation?


Debt consolidation bundles your various debts into a single new loan. This streamlines the process into one monthly payment—sometimes at a lower interest rate than before.

An efficient way to get a handle on your debt is to consolidate it into your Home Equity Line of Credit (HELOC). With a fixed payment for the life of the loan, you will know what your monthly expected payment is going to be.

Managing payments and outstanding balances for car loans, credit cards, and even student loans or medical debt can be challenging and expensive. The average American has two credit cards, carrying a debt balance of approximately $5,589 (and often substantially higher if they have student debt). The average interest rate for credit cards is 16.65%; if you have a less than stellar credit score, that interest rate can jump from 20% to 30%.

If you’re looking for a way to reduce your debt burden, you have more options than you realize. Owning your home, with an existing home equity line of credit (HELOC) already on your account, makes debt easier to manage—and ultimately minimize—your existing debt.

A Lower Interest Rate

Since you’re using your home as collateral, HELOC rates are significantly lower than credit card rates, some auto loan rates, and student loan rates. The lower your interest rate, the more money you’ll free up each month to pay down the balance or use towards other financial goals.

Streamlined Payments

If you have multiple credit cards or several other loans, you can consolidate all of them into one HELOC. That means you only have one payment to keep track of each month. Making it even easier on yourself by signing up for automatic payments for at least the minimum amount, so that you’ll never miss a payment.

Having high credit card balances relative to your limits can hurt your credit score. Reducing those balances by transferring that debt to a HELOC could improve your credit score over time.

Considering Timing: When Is Debt Consolidation a Good Idea?

In general, debt consolidation can help you simplify and speed up debt repayments. Short-term loans may help you pay off your debt faster and cheaper in the long run because of lower interest rates. Meanwhile, long-term loans may reduce your overall monthly payments, relieving stress on your budget. You also reduce the number of payments you make to financial institutions, simplifying your budget.

The ideal time to consolidate debt is when you have a large amount of long-term debt and a high credit score to qualify for lower interest rates. Your cash flow must comfortably cover the new debt repayment plan; you should also understand your spending habits, why you’re in debt, and how committed you are to improving your finances. To make debt consolidation work for you, you must stop accumulating more debt and only use credit sparingly.

Get Started Today!

With a HELOC and a trusted financial partner like Minnesota Bank & Trust, a division of HTLF Bank at your side to offer guidance, you’ll soon be on your way to financial freedom. Give your local bank a call today and see how we can help you with debt consolidation.


The information contained herein is for informational purposes only, as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.