Debt · July 20, 2020

Consider Debt Consolidation During COVID‑19

The COVID-19 pandemic has impacted all aspects of our lives, including working, parenting, socializing—even getting our groceries. One of the major changes the crisis has brought to the broader economy is a sharp drop in interest rates. For many of us, this may mean rethinking our approach to debt.

One key question that arises for many people is whether debt consolidation might make sense in this low-interest-rate environment. The answer depends on your needs, goals and current circumstances. Here's what you need to know about consolidating debt right now.

The current state of interest rates

The Federal Reserve Board has taken steps to keep interest rates low—in an attempt to minimize the impact of COVID-19 on the economy. The hope is that when interest rates go down, Americans will feel comfortable borrowing to make purchases that keep the economy going. However, these lower interest rates may also benefit borrowers who want to reduce the cost of their current debt.

Why debt consolidation could make sense now

Debt consolidation refers to moving several higher-interest-rate debt accounts to one lower-rate account. With the current lower interest rates in the market, it costs less for you to borrow money right now. That could benefit you and your family in several ways.

First, you could pay off your debt faster. If you keep your payments the same, with a lower interest rate, more of that payment goes toward paying down the amount borrowed, and less goes to interest.

You might also choose lower payments when you consolidate debt to a lower-interest-rate account. That means some of the money you'd previously budgeted for debt payments could go toward building your emergency savings or buying other things your family needs right now.

Debt consolidation can also simplify your debt repayment. Instead of making several different smaller payments to credit cards, credit lines or loans throughout the month, you make one larger payment. In stressful times like these, streamlining your finances could help your mental health.

Deciding what debt to consolidate

What debts you should consolidate and the method that makes sense for you depend on the types of debt you currently have, as well as your credit score.

Student loans

If you have student loans, you may not need to worry about consolidating them into other accounts right now. Under the CARES Act, signed into law at the end of March, federal student loan interest has been set to 0% and payments suspended until September 1, 2020 due to the economic conditions caused by the COVID-19 pandemic. That means you can apply your payment toward higher-interest-rate debt or use it to build your emergency savings.

Credit cards

Lenders understand the financial strain of the current situation and are already rolling out new programs and features to help borrowers. If you have existing credit card debt, look for low-APR offers or Covid-19 relief programs from your existing lenders. If you have strong credit, you might consider applying for a zero-interest APR balance transfer credit card offer.

Home loans

Mortgage rates fell to historic lows in the early days of the COVID-19 crisis. If you're a homeowner with higher-interest-rate or unsecured debt such as credit card, consumer loan or credit line balances, you might consider consolidating your more expensive debt with a new mortgage or home equity. Talk to your lender about a mortgage refinance or accessing the equity in your home with a home equity line of credit.

Because mortgages get paid back over many years, repayment of the additional debt you add to your mortgage gets spread out over many payments. This could mean you replace higher regular loan payments with just a minimal increase in your mortgage payment amount.

Understand your options

The COVID-19 crisis has introduced new concerns for many of us. However, it's important to understand you do have options—and even opportunities—when it comes to your finances. Talk to a financial advisor for additional insights and advice on strengthening your personal financial situation during this uncertain time.


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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.