California Debt Consolidation: What Is It and What Options Do I Have?

If you’re wondering why California debt consolidation may be convenient for residents in the state, read on! The Golden State ranks third on the most expensive states to live in, it’s no wonder that the average household debt stands at $73,350 – 39% higher than the national average. Apart from mortgage, California credit card debts and other unsecured debts significantly contribute to the swelling debt numbers in the state.

Paying off debt can be exacting, and more so when you have balances on several cards. Your efforts to clear debt are neutralized whenever you split payments between different accounts. Adopting a debt consolidation strategy can help you quickly knock down your debt.

Debt consolidation means rolling multiple debts into a single payment. The idea is to make one monthly payment at a lower interest rate than your current rate. Consolidating debt isn’t risk-proof – you will need to find an option that fits your budget and goals. Read on to find out whether debt consolidation is good for you, and the various CA debt consolidation options at your disposal.

California Debt Consolidation Strategies

Consolidating debt saves you money in the long run and also preserves your credit score. However, it is not for everyone. The ideal candidate for a debt consolidation loan will have to tick the following boxes: a good credit score, a clean credit history, a reasonable debt-to-income (DTI) ratio, and a consistent income to repay the loan.

If you have credit card debt of $10,000 or more and are looking for a simple, single monthly payment, here are some strategies for debt consolidation in CA you can explore.

California Debt Consolidation Loans

A low-interest debt consolidation loan can simplify bill-paying – and save you money – if you are dealing with multiple credit card debts, personal loans, and medical bills. The money obtained can be used to clear your unsecured debts, leaving you with a single, easy-to-manage monthly payment.

In California, banks, credit unions, and online lenders readily offer debt consolidation loans. With a good to exceptional credit score, you can secure a loan with a low annual percentage rate (APR). The best California debt consolidation loan will have flexible payment terms, no origination fees, and lower interest than your credit card debts.

While these loans will generally come with low ARPs, individuals with good to fair scores may have to part with more cash in interest. Securing a low-interest loan with a poor credit score is a tall order, and any available options may not save you money.

There’s a catch though: Some California debt consolidation companies will sell you a debt settlement program, which can be a risky option. Do due diligence to ascertain that you’re getting a debt consolidation loan and nothing else.

Balance Transfer Card

California residents like their credit cards. The average California credit card debt is about $5,120, which is 29% less than the highest average credit card debt. With a balance transfer card, it is possible to transfer credit card debt to a single card that charges no interest during the introductory APR period.

To qualify for a balance transfer card, also called credit card refinancing, you will need at least good credit. Depending on your issuer, you may avoid an annual fee or pay a one-time balance transfer fee of 3-5% of the transferred amount.

The most alluring feature of balance transfer cards is the 0% introductory APR for a specific period (12-18 months). To leverage this, strive to pay off all your debt before this period is over. After this period lapses, a higher APR kicks in.

Home Equity Loan or Home Equity Line of Credit (HELOC)

Another California debt consolidation option is securing a loan or a line of credit against your current home value and use it to pay off credit card debts and other unsecured debts. Home equity loans are fixed interest rate, lump-sum loans while HELOCs are like credit cards with varying interest rates.

These loans have lower interest rates than balance transfer credit cards and personal loans. Also, their longer repayment periods help you keep payments lower. However, you risk losing your home if you default on your payments.

Loans from Family and Friends

Borrowing money from a family member or friend is also a viable option for debt consolidation in California. If they have the ability and will to lend you money, you could use it to clear your debt and repay them over time. Like any other loans, these also come with benefits and risks.

Be open with your friend or family member about your debts and monthly payment. If possible, formulate and sign a loan contract. While your “lender” will most likely be flexible about the borrowed amount and repayment arrangements, be sure to honor the loan contact.

Remember, don’t take offense if they turn you down – they may be having their financial struggles. With such loans, you skip origination fees and get flexible terms of payment.

401(k) Loan

Taking a loan from your 401(k) isn’t the best financial decision, but it may help if you want to consolidate your debt. These loans may impact your retirement, and should only be considered as a last resort. What’s more, you may have to find ways of repaying your loan if you leave or lose your job.

On the bright side, this loan has no impact on your credit score and has lower interest rates compared to other unsecured loans.

California Credit Counseling and Debt Management Plans

Unsure what to do next in your efforts to knock down debt? Credit counseling may be a good option. A financial counselor will assess your situation and present the best options. By talking things through, you better understand your financial situation and the implications that your decisions could have.

Nonprofit credit counseling agencies run programs known as debt management plans. Such a plan can help you clear your credit card debt within 3-5 years. Your counseling agency will go over your budget to establish an affordable monthly payment amount. They then negotiate with credit card companies on a reduced interest that will enable you to comfortably make monthly payments.

A California debt management plan can be particularly helpful to an individual with a poor credit score. Keep in mind that this isn’t a loan; it is a program that rolls several credit card debts into one and lets you pay at a reduced interest rate.

Takeaway

Dealing with multiple debts can be mind-boggling, and debt consolidation helps you manage debt better. Debt consolidation isn’t for everyone, and you should assess your situation and available options before making a move. Be sure to understand the risk of each option before settling on one. Also, make timely payments on all consolidation loans taken to clear your debts. Otherwise, you may end up in more financial trouble than you currently are in.