Debt consolidation loans can simplify repayment and they could save you money. Learn how to determine if one is right for you.

It’s quite common to have multiple debts; credit cards, student loans, medical bills and vehicle loans are a reality for many, many people. For anyone with two or more creditors, debt consolidation can ease the pressures of repayment. However, before you jump into debt consolidation understand the pros and cons, as well as your options for refinancing your debt.

Pros of debt consolidation

Consolidating multiple debts simplifies your finances since it combines multiple payments into one. One due date, one payment, done! It’s much easier than managing several payments on various due dates.

A debt consolidation loan may also help you pay off debt sooner because you have fixed payments and a definite date for paying off the loan. In contrast, credit cards only require minimum payments and those payments can continue indefinitely if you keep adding to the card’s balance.

Additionally, if the interest rate on your debt consolidation loan is lower than what you currently pay lenders, you will save on overall interest costs.

Cons of debt consolidation

It’s possible that a debt consolidation loan might not actually save you money. If the interest rate on your consolidated debt is higher than what you already pay, your debt will cost even more.

Even if the interest rate is lower on a consolidated loan, you could pay more depending on the repayment period. The Consumers Debt Consolidation Calculator makes it simple to determine if debt consolidation is right for you.

Refinancing your debt is likely to come with one or more fees. These can include:

• Balance transfer fees
• Loan origination fees
• Closing costs
• Annual fees

If you continue to make credit card charges while paying off a debt consolidation loan, you could end up even deeper in debt.

Also, if your debt consolidation loan is a secured personal loan, the assets used as collateral are at risk if you don’t repay the loan.

Debt consolidation is not the same as debt settlement

Don’t confuse debt consolidation with debt settlement. With debt consolidation, you pay back everything you owe. Some companies offer debt settlement services which means they work with your creditors to accept a lump sum that’s lower than what you owe—and you’ll pay a very high fee for this service. Plus, debt settlement will have a negative effect on your credit report for seven years.

Address the issues that led to debt

Consolidating loans can be a useful step in paying down debt, however, it’s not a strategy by itself. Any issues that originally led to getting into debt need to be addressed. For long-term financial health, problems like unhealthy spending habits need to be corrected.

Debt consolidation options

If consolidating debt is right for you, you have several financing options. You could use:

• Personal loan
• Balance transfer to a credit card
• Debt consolidation loan

Limited time offer

If you don’t yet have a Consumers credit card, check out our current balance transfer offers.

 

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