Do you have debt with different banks and don’t know which one to pay off first? Debt consolidation loans concentrate all your debt with one bank or lender. They usually have better loan terms and will give you a better idea of the time to clear off your debt.
When looking to restructure your finances, having to make only one payment takes the worry out of different interest rates and due dates, and it will give you a clearer picture of how long it will take to pay off your debt in full. Another advantage of these loans is that they may lower your monthly payment. The average interest rate for a credit card is 16%, compared to a debt consolidation loan that goes down to 11%. While you may have a lower rate on your debt for certain types of loans, the overall benefit is how much you will be saving. It is also an excellent option if you are looking to boost your credit score, as your payment history has a significant bearing on your score. If you manage that single payment, you could increase your credit score in the long term. However, a consolidation loan will lower your score initially.
If you don’t have a high enough credit score to have a low-interest loan, consolidating your debt could be more expensive than your initial debt. When shopping for the best loan, consider the interest rate, origination fees, transfer fees, closing costs, and annual fees, and do the math before acquiring any. To avoid an increase in interest on the new loan, budget monthly payments that exceed the minimum loan payment. This way you can take advantage of debt consolidation to the fullest.
In a nutshell
Debt consolidation loans are a good option if you have the necessary score to qualify for a lower rate loan. Remember that even if you have a percentage of the debt at lower rates, you should still look at the big picture of how much you would be saving on your overall debt by moving to a new loan.