Benefits of Debt Consolidation
Here are some of the key upsides to debt consolidation:
• Simplifying debt management with a single payment
• Lowering interest rates and monthly payments, thereby saving you money
• Possibly shortening the period of time in which you are paying off this debt
• Potentially improving credit score and financial stability
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Considerations for Debt Consolidation Loans
It’s important to be aware of these facets of debt consolidation loans:
• Your financial profile (your credit score range, for instance) can impact what offers you receive for debt consolidation loans. If you have poor credit, you may not qualify for a lower interest rate option.
• When you consolidate your debt, you still have debt. It doesn’t go away and you need to keep up with your payments.
• Debt consolidation doesn’t necessarily make the problem that caused your debt go away. If you are prone to impulse spending or live in an area with a high cost of living that has you struggling to pay bills, a debt consolidation loan may only be of temporary benefit.
💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why credit card consolidation loans are so popular.
How to Choose a Debt Consolidation Option
If you’re considering a debt consolidation method, it’s worthwhile to review your potential options, including but not limited to a debt consolidation loan. These can include:
• Debt consolidation loans from a financial institution typically give you a sum of money to pay off your debts and then move on to eliminating your one new loan. You may also hear these referred to as unsecured personal loans, though some secured options may be available.
• Balance transfer credit cards, which can allow you to move your credit card balance to a card with a temporary zero-interest card (typically for up to 18 months), giving you breathing room to pay down your debt.
• A home equity loan (provided you have equity in a home to borrow against) can be a possibility, but you could lose your property if you don’t keep up with payments.
• A retirement plan loan could help you pay off your debt. While you do get your hands on cash, your retirement fund will be smaller and could face penalties and taxes.
• You might also look into working with a debt counselor to get a fuller view of your possibilities, especially if you are really struggling to keep up with what you owe. They may be able to advise you on debt management plans.
As you review your options, you should look carefully at debt consolidation loan offers. You can compare interest rates and terms from different lenders, as well as potential fees and other aspects of the loan.
Only you can decide which debt consolidation loan might be best for your needs or whether a different option is the right choice for handling your debt.
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The Takeaway
Using a debt consolidation loan calculator can help you see what your payments might look like if you replaced various debts with a single debt consolidation loan. These consolidation loans can simplify paying off your debt and may be able to save you money.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
