Debt consolidation might be a great way to roll a variety of debts into a monthly payment that might ease the stress of being in debt. According to Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, “Debt consolidation loans allow people to roll their debt balances into one loan, presumably with a lower interest rate. This is convenient because you just have one bill to pay, and it should save you money through the lower interest rate.”
How Does it Work?
Debt consolidation loans combine your debts into a single loan. This might result in a lower interest rate, a lower monthly bill, or even both, which in turn, helps you to pay off your debts faster. These debts must be unsecured, and have no collateral attached to them, such as car, house, boat, etc… Its important to remember that this does not decrease or erase the debt. It’s simply transferred to another lender.
Who Should Consider?
According to Harrine Freeman, CEO and owner of a credit repair and counseling service, consolidated debt loans are the most helpful for people with multiple debts, people who owe more than $10,000, people receiving frequent calls or letters from collections agencies, people with accounts that have high interest rates or monthly payments, and those who are finding monthly payments difficult to make.
If you are considering a debt consolidation loan, you’ll want to double check the interest rates on the loan. Often times they are interest rate free for a certain amount of time, but then increase to a higher rate than what you had on your individually held loans. You’ll also want to make sure you’re able to pay the monthly payments. As with anything, a missed payment can be reflected in your credit score. To be safe, make sure you do your homework, and know what you’re getting yourself into when consolidating.