Whether you owe money on a personal loan, have medical bills, or credit card balances, debt consolidation can help you pay off debt faster, and even possibly save you money. You may need to take out a new loan or to help you pay off existing debts, and maintain discipline to avoid piling on more debt. With good credit, however, you may qualify for better repayment terms.
Debt consolidation means the use of a new loan, line of credit, or a debt management program that combines to pay off multiple debts at once. While having a single monthly payment to make, you might also qualify for a lower interest rate than earlier.
When you take out a debt consolidation loan, it is possible to change your repayment terms to make it more manageable or affordable, or sometimes even both.
A Personal Loan
Personal loans can be used for almost anything, like paying for college bills or medical expenses, or even consolidating and paying off debt. The most common reason borrowers take personal loans is for consolidating debt. It is usually easier to qualify for a secured personal loan than an unsecured one, and a secured loan is also more likely to come at lower interest rates. You’ll need to put up some type of collateral, however, such as a car, savings, or investment account, and if you fall behind on a payment, your lender has the right to take that asset.
Debt Consolidation with Fees
You should expect to pay upfront fees that raise the overall cost of consolidating your debt, whether it’s a loan, line of credit, or a debt management program.
Not Your Best Option
While it’s admirable to want to pay off debt, debt consolidation may not be the right fit for everyone. Sometimes, making small savings and using that money to pay off accounts you owe may serve you better than taking out a new loan.
Not Your only Consolidation Option
Debt consolidation loans are very popular for managing debt, but they’re not the only way to consolidate debt. Depending on your credit score, as well as whether or not you own a home, some consolidation methods such as balance transfer credit cards, home equity line of credit, home equity loans and more might be more cost-effective.