Can Debt Consolidation Be Right For You?
Find out how consolidating debt could help you improve your financial situation.
Debt consolidation1 is one way to make your debt settlement easier to handle. Rather than making multiple minimum monthly payments on multiple accounts, this repayment strategy involves taking out a new loan to combine and cover your other loans or debts. Then you can pay off all your debts with a single monthly payment.
Simplify your payments
A debt consolidation loan could simplify your monthly payments into a single monthly payment and could lead to a lower monthly payment.
Debt consolidation often works best for those with credit card debt because that debt often carries a higher interest rate compared to other types of debt. If you have a home or other valuable property that you can use as collateral, lenders may be more likely to offer you lower payments and interest rates. But remember that if you use your property as collateral, you risk losing it if you default on the loan.
A debt consolidation loan with a longer repayment period may lower your monthly payment, but increase the total amount you pay over the life of the loan. Paying more than the minimum payment can help you pay off the loan more quickly.
Read the fine print
Some debt consolidation options offer low introductory rates to encourage clients to transfer high-rate balances, but these rates typically increase after the introductory period ends. Debt consolidation loans may also require you to pay off your debt for a specific amount of time. Make sure you understand the terms of the loan you are considering before taking the next steps.
Consolidating your debts into a single loan could make it easier to manage, since it involves a single monthly payment.
It is important to understand that a debt consolidation loan simply transfers the debt; therefore, you are still in debt. Debt consolidation may not be right for everyone, but carefully examining your options can help you effectively manage and reduce your debt over time.