Debt consolidation moves borrowers should make right now

The right debt consolidation approach is key in today's unique economic climate. Getty Images

News this week that credit card debt balances are on the decline was a positive step in the right direction, both for the country and for individual cardholders. But it's only the first step in a lengthy journey. Credit card interest rates remain just under the recent record high of 23% and inflation and interest rates remain a concern, albeit more muted ones than they had been in the recent past. Still, if you built up a substantial credit card balance in recent years, it will require substantial work to reduce it now. 

One debt relief option that you may be considering now is debt consolidation. This typically occurs by taking out a new loan, often at a much lower interest rate than the ones you have with your credit cards. You then pay off the new, cheaper loan each month until you're paid in full. Not only will this reduce your interest costs, but it can simplify your debt approach by having a single bill to pay every four weeks versus multiple ones to worry about. 

That said, in the current economic climate, there are some specific, timely debt consolidation moves borrowers should strongly consider making right now. Below, we'll examine four to make soon.

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Debt consolidation moves borrowers should make right now

Here are four strategic debt consolidation moves borrowers should consider making currently:

Take the initiative

Waiting for the interest rate climate to cool significantly enough to reduce your credit card interest rates materially is not a strategy. Instead, that will just delay the work you already need to be involved in. The federal funds rate, after all, is just one factor that drives credit card rates. And it's unlikely to be cut until July, at the earliest, according to the CME Group's FedWatch tool and that cut is likely to be just 25 basis points. How much of that reduction will trickle down to your current credit card rate? Waiting, then, doesn't make sense when you have multiple ways to consolidate your high-rate credit card debt right now.

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Shop for lenders

All personal loans are not created the same, and not all lender rates and offers will be identical or even necessarily close to one another. So if you're thinking about taking out a debt consolidation loan to combine your outstanding credit card debt balances, it makes sense to shop around for rates and lenders. Consider getting quotes from at least three to determine who is truly offering the most cost-effective solution. But remember that your credit will be checked during this process, leading to a potential (but temporary) drop in your score.

Determine the right approach

You can find a debt consolidation loan on your own. Or you could use the resources a debt relief company offers and have the loan secured through them instead. There's no right or wrong answer as this determination will be a personal one, largely based on your preferences and current debt situation. But it's worth exploring debt consolidation loans via both. The expertise, knowledge and guidance a debt relief company can provide in the process could outweigh any minor cost-savings secured by taking the DIY approach. But you won't know which makes more sense without doing your research.

Consider alternatives

Secured or unsecured debt consolidation loans, whether taken out on your own or with the help of a debt relief company, are only two of your options, even if they're two of the primary ones. But it's also important to consider alternatives. A home equity line of credit (HELOC) has one of the lowest interest rates available across borrowing products this May and it can easily be used to consolidate your debt. A home equity loan, which has a similarly low rate, could also be effective. While both will require you to use your home as collateral, that may be a worthwhile exchange if it means paying less in interest each month. So consider exploring these options, too.

The bottom line

A debt consolidation loan, whether secured on your own or via a debt relief company, could provide the critical financial relief you need from your current, high-rate credit card debt. But take the initiative now, be sure to shop for lenders and take the time to determine if consolidating your debt with your accumulated home equity could be more advantageous. By making these moves now, you can put yourself on a more secure footing and work toward regaining your financial freedom, perhaps sooner than you initially thought possible.

Matt Richardson

Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.