Should I follow the Debt Manager plan or consolidate my debts with a personal loan?

[jomal676]

I have started to pay off all my debit (credit card, student loans and car payment totaling about $24,000). I used the debit manager tool online and found it very helpful. I'm wondering if it makes more sense to take a personal loan out to pay off everything or if I should stick to the debit manager plan?

[Mikel Van Cleve USAA]

Hi jomal676,

Thank you for your question and your feedback on the Debt Manager tool. Consolidating debts may be an option to help manage your payments and pay down debt faster. Here are a few things to consider first: 

• Have a plan to manage your expenses each month and prevent accruing additional debt. USAA Money Manager can help you create a budget and track your spending. Look at your current expenses and see if there are areas you can cut back on to free up additional money for saving and debt repayment. 
• Before consolidating debts, be sure you understand the fees, terms, and conditions involved. In particular, review your existing student loans to ensure you are not giving up certain benefits such as interest rate discounts, principal rebates, or loan cancellation benefits. 
• Visit the the Personal Loans page to use the Debt Consolidator Tool and see how our different loan options may help you lower your monthly payment or pay off debt faster.
• If your interest rates on existing debts are lower than a personal loan, or if you may have to forego certain benefits with your student loans, then consider sticking with the Debt Manager plan instead and pay extra towards the highest interest rate debt first. 

Also consider a few of the common mistakes that people make when consolidating debts or creating a debt repayment plan:

• Consolidating debts and closing the older accounts without understanding the impact to your credit score. It may be okay to close certain accounts, while closing others could negatively impact your score. It is often more beneficial to leave the older accounts open, just be careful not to make the next mistake.
• Continuing to charge up credit cards after paying off the balance(s). This may be tempting, but avoid the urge. 
• Not establishing at least a $1,000 emergency fund prior to paying extra on the debt. This cushion is important so that you don't continually charge up additional debt every time something unexpected happens...and we all know that things do happen.

Paying down debt is one of the best feelings as it frees up money to work on other things you want to accomplish. For additional assistance, feel free to contact one of our financial advisors at 1-800-531-8722. Best of luck as you work towards becoming debt free.

Thanks,

Mikel