Is a Debt Consolidation Loan the Best Option for Your Debt Relief?
Let’s face facts; having a lot of debt can be frustrating. Your monthly payments may be hard to manage, and it seems like those minimum payments just aren’t chipping away at your balances.
You know something has to give, and a debt consolidation loan can appear to be an attractive option. But is it the right choice?
If you’re considering a debt consolidation loan, here’s what you need to know.
What is a Debt Consolidation Loan?
Functionally, a debt consolidation loan is a method for refinancing what you own. If you’re approved, the money from the loan pays off your other debts. Then, you simply repay the loan.
It gives people an option for having all or some of their debt put into a nice little package. You have one due date and one monthly payment, simplifying your repayment.
On the surface, it can sound like a dream come true. And, for some, it may well be. However, there are some other points to consider.
What are the Interest Rates?
Like any other lending product, the interest rate you receive on your debt consolidation loan will depend on your unique situation. And that’s where things can get tricky.
There is no guarantee that you’ll get an interest rate on a debt consolidation loan that is lower than what you are paying today. To find out what rates are available to you, you’ll have to apply. Then, the lender will review your credit history and debt load, and make a determination.
But I’ll Still Pay Less, Right?
Some people who get a debt consolidation loan will pay less, but others will pay more. It depends on your interest rate and the repayment terms.
If you get a lower interest rate and repay the loan quickly, then you might save money. However, if you extend the repayment or end up with a similar interest rate, then you might not.
You’ll need to examine your situation to determine what you’ll pay over the life of the loan. Luckily, there are numerous loan amortization calculators online that can help you complete the calculations.
Is a Debt Consolidation Loan a Good Option?
Ultimately, you’ll have to decide whether a debt consolidation loan is the right move. Examine the terms associated with the loan, compare them to your current debts, and see how the math works out.
In some cases, it might be a wise choice. But, it’s important to remember that it isn’t your only option. You may also want to explore alternative debt management or settlement plans, or even bankruptcy, depending on your circumstances.
However, if you can get a lower interest rate and repay the loan quickly, then a debt consolidation loan could be a viable solution.
Have you ever used a debt consolidation loan? Tell us about your experience in the comments below!
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