February 29, 2024Debt Consolidation: How It Works

If you’re like most, you probably have multiple reoccurring debts that must be paid off. These debts can consist of student loans, personal loans, credit cards, medical bills, and car payments. It can be hard to pay off the debts separately because each debt has a different balance, payment period, and interest rate. 

Keeping track of how much you have to pay for each debt and when you have to pay it can be extremely difficult. If you find yourself in a whirlwind of loan and credit card payments, debt consolidation may be the perfect solution for you.  

What is Debt Consolidation? 

Debt consolidation is the process of combining multiple loans or credit cards into a single loan. The one loan structure will typically have a lower interest rate – oftentimes much lower than the current rates you are paying.    

Since you are only making one payment each month instead of multiple payments to different financial institutions, managing your finances becomes much easier.   

How Does Debt Consolidation Work? 

Let’s say you currently have three credit cards. Each credit card has different balances, as well as various annual percentage rates (APR). 

Credit Card #1: $3,000 balance at 15% APR 

Credit Card #2: $2,500 balance at 23% APR 

Credit Card #3: $4,500 balance at 19% APR 

Total Balances: $10,000 

The high-interest rates on these credit cards can make paying off the balances very challenging. Instead, consolidate the three credit cards into a single, lower-rate $10,000 Personal Loan with the credit union.  

With set repayment terms and a lower interest rate, the Personal Loan will help you pay off the total balance quicker and pay less interest versus making minimum payments on the three separate credit cards. It’s a win/win. 

If you own your home, a Home Equity Loan is another option to consider when consolidating debt. It will accomplish the same objective as the Personal Loan in the above example; however, because Home Equity Loans are secured loans, the interest rates will typically be lower. This will help you save even more money through debt consolidation.  

Check out Home Equity Loan options at PEFCU, here. Right now, PEFCU will pay your closing costs* and get your money to you fast! 

Benefits of Debt Consolidation  

There are three main benefits to consolidating debt: 

  • Reducing the Amount of Interest Paid 
  • Paying Off Loans & Credit Cards Quicker 
  • Creating a Single, Manageable Monthly Payment 

By combining multiple, high-interest credit cards or loans into a single, lower-rate loan, you’ll instantly reduce the amount of interest you pay each month. You will also notice how much easier it is to manage your monthly expenses by only having to make one loan payment versus several.  

Lastly, if you consolidate your debt with a Personal Loan or Home Equity Loan, you will have set repayment terms. This will help you pay off the total debt quicker and save even more interest than if you simply made minimum payments on a credit card.  

Keep in Mind… 

Consolidating debt is not limited to Personal Loans or Home Equity Loans. You can consolidate several high-interest rate credit cards into a new lower-rate credit card; however, this is not always the best option.  

Without set repayment terms, you will only be required to make the minimum monthly payment. If your goal is to eliminate debt, this option may actually take longer to pay off the debt and cost you more in interest. Secondly, many credit cards have balance transfer fees that will put you even further behind your goal of reducing your debt.  

We’re Here to Help! 

When it comes to consolidating debt, our Lending Team is ready to help. We will review all your outstanding loan balances and find the best option specifically for you and your financial needs.  

Eliminating debt can be a challenging task, but with the right help, you’ll be on the right track in no time. Stop by any branch location or give us a call at 800-226-6673.  


Each individual’s financial situation is unique and readers are encouraged to contact PEFCU when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.  

*Offer valid as of 10/23/2023 and may be canceled without notice.  

PEFCU will pay member closing costs on Fixed Equity Loans for loan amounts up to $250,000. Membership and eligibility requirements apply.  Approval subject to application, eligibility, credit and acceptable property (must be your primary residence, manufactured homes and townhomes excluded; acceptable appraisal and title required). Property insurance required. Flood insurance when required. Online appraisal typically used to determine home value. Minimum loan amount $10,000. Not all Homes will qualify to be mortgaged for more than their original purchase price. “No Closing Costs” applies to eligible loan under $250,000 on primary residence with a combined loan to value (CLTV) of 90% or less. Does not apply to purchase transactions. Appraisal, survey, title policy and other closing costs at borrower’s expense may be required on other loans. Other terms and conditions apply. See your Mortgage Loan Advisor for details. 

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