Paying off high interest debt is a top financial goal for many Americans. According to a 2020 report citing the credit bureau Experian, the average American carries $6,200 in credit card debt. The COVID-19 pandemic has further fueled our money worries as people feel the impact of the economic crisis.

While it’s hard not to feel overwhelmed, the best thing you can do is to focus on what you can control, and it starts with understanding your options to reduce and pay off your debt. If you need one-on-one financial advice regarding your personal situation, get in touch with a Patelco Certified Financial Specialist.

What is debt consolidation?

Debt consolidation is when you roll all of your smaller individual loans and credit card balances into one large loan, usually at a lower interest rate. Typically, you will end up saving money in interest or free up cash each month with a more affordable payment.

What’s the best way to consolidate my debt?

There are several ways to consolidate your debt. Choosing the option that’s right for you will depend on your individual situation. Below is a side-by-side comparison of lending options, including sample payments and terms. Let’s review them together:

$20,000 Loan Amount Auto Refinance Personal Loan Credit Card HELOC
Annual Percentage Rate (APR) 3.32%
Average Loan Term in Months 63 48 240 300
Average Monthly Payment $347 $488 $400 $140
Estimated Total Interest $1,818 $3,291 $20,905 $11,795

Side-by-side comparison of sample payment and rates1

  1. Credit Card Balance Transfer: There are many 0% APR balance transfer offers out there from banks and credit card companies. To do a balance transfer, you’ll need to provide them with information, such as the issuing bank, account number, and approximate balance. Or, they may send you convenience checks that you can use to pay off your old balances.

    Keep in mind, however, that there is usually a balance transfer fee, typically around 3% of the balance for this type of transaction. So if you are transferring $6,000 in higher rate credit balances, you’ll pay $180 in fees upfront for the 0% interest that will last only for a certain period of time (e.g., six months). Plus, you’ll have to pay the going interest rate after the introductory period is over (currently ranging from 12% - 23%). Taking advantage of a 0% APR credit card balance transfer could be a good option if you’re expecting a large sum in the near future to cut down on your balance before the introductory rate period ends.

  2. Car Loan Refinance: An often overlooked option is to borrow against your car. If you own your car free and clear, or if you have an existing car loan, you can refinance to take money from the equity of your car to pay off higher interest rate debt and free up cash each month.

    Because you’re using the car as collateral, you’ll be able to borrow at a much better interest rate than an unsecured loan. Depending on your qualification, you can borrow up to 135% of the car’s value on cars that are less than 10 years old.

  3. Mortgage cash out refinance, home equity loans and lines of credit: Debt consolidation is a common reason why people refinance or take out home equity loans or lines of credit. For many homeowners, accessing cash out from the equity in their home is an attractive option to pay off higher interest rate debt, because it offers significantly lower rates and payments.

    You'll need to fill out an application and demonstrate to the lender that you'll be able to make regular monthly payments. Your home will then be appraised to determine the amount of your equity. Typically, you can borrow an amount up to 80 percent of the value of the equity in your home, which could potentially allow you to access more cash.

    Keep in mind that borrowing against your home can stretch out your debt for a much longer period, up to 30 years. If you are unable to make your payments, the lender could foreclose on your home. Plus, if you take out a home equity line of credit, the minimum payment required is interest only and you’ll need to pay more in order to pay down the balance owed.

  4. Personal Loans: Some lenders offer loans specifically designed for debt consolidation. Again, you'll need to fill out an application and demonstrate to the lender that you'll be able to make regular monthly payments. Keep in mind, however, that these loans usually come with higher interest rates than auto loans or home equity loans because it’s unsecured. A personal loan a good option if you don’t have assets that you can use as collateral and want a fixed monthly payment to eliminate your debt at the end of the term.

  5. Debt Management Plan: As a last resort, if you are feeling overwhelmed and have been unable to work out a plan with your creditors, Patelco partners with BALANCE that offers a Debt Management Plan (DMP) for repayment of their unsecured debts. The DMP can offer lower interest rates, a cessation of certain fees, and lower required monthly payments. They’ll work directly with your creditors on your behalf. Learn more about BALANCE.

    Remember, the right choice for you will depend on your individual situation. This is a guide of tools to help you work towards being debt-free. Spending less than what you bring home with careful budgeting, along with applying an extra amount to reduce your debt, will go a long way in helping you reach your goal over time. If you would like some guidance about the options available to you based on your individual situation, get in touch with a Patelco Certified Financial Specialist. We’re here to help.


A brighter financial future starts here

  1. The savings example is calculated based on a $20,000 loan amount as of July 2020. Credit card using estimated Industry average rate and a 2% payment assumption. Personal loans using Patelco’s last 90 days funded loan averages for rate and term. Auto refinance using Patelco’s last 90 days funded loan averages for rate and term. Actual savings may vary for individuals based on balance, rate and term. This is not a commitment to lend. Home Equity loans and lines of credit are available on California properties only. APR (annual percentage rate) and other terms shown are accurate as of September 1, 2020 and apply to a HELOC for the most qualified applicant at CLTV up to 80%. Not all applicants will qualify for the lowest rate. Rates vary based on property value, line amount and other factors, and will vary for second or vacation homes. The minimum periodic payment is interest-only for the first ten years (“draw period”) followed by fully-amortizing payments to repay the balance over the final fifteen years. No draws will be allowed during the repayment period. Payments and rate can adjust monthly. Payments will increase if rates increase. At the end of the draw period, your required monthly payments will increase because you will be paying both principal and interest. The rate is calculated using an index plus a margin. The index used is the Prime Rate as published in The Wall Street Journal Western Edition on the last business day of the month prior to the change. Maximum interest rate is 17% APR.
  2. Variable APR (Annual Percentage Rate) as of 3/9/2021. Rate adjusts monthly and equals prime rate for previous month plus a margin range based on credit worthiness. Applies to Purchases and Balance Transfers.
  3. APR (Annual Percentage Rate). Auto rates starting at 2.55% APR effective 7/16/2021; subject to change without notice. Patelco offers a range of base rates and discounts that depend on factors such as credit history, loan term, Patelco account relationship, amount financed and vehicle age. Additional discounts may apply. Actual rates are disclosed to approved applicants in writing prior to loan consummation and may be as high as 9.55% APR. To learn more about rates, terms, and exclusive discounts for members, such as Commitment Household, call 800.358.8228 or visit any Patelco branch. Loan payment example: $21.96 per month for each $1000 borrowed at 2.55% APR for a used auto loan (models 2011-2019) for 48 months.
  4. At closing, you have the option to select up to 90 days of deferred loan payments on your new or used auto loan. The actual number of days will depend on the terms of the loan. Interest will accrue on your auto loan beginning on the date the loan is funded and the first payment will be applied to interest accrued from the date the loan is funded to the first payment date and then to principal due.

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    “Patelco gave us a debt consolidation loan when we needed it the most—we’re set to pay it off in a year! Thank you Patelco for being so amazing!”
    - Christin, Patelco Member