Debt consolidation can be the answer to many people’s financial situations. However, it shouldn’t be considered as the only solution to break financial habits.
There are benefits to personal loans that consolidate your unsecured credit card debt into one loan with one payment. Often times the interest rate is much lower and fixed for a set repayment time period. Minimum monthly payments to a credit card might take you decades to pay off but a debt consolidation loan can be paid off in as little as 24 months.
It all depends on the type, interest rate and terms of the debt consolidation loan.
However, debt consolidation loans can add to financial distress when financial habits and spending remains out of control. If you haven’t acknowledged or worked to change your mindset around debt, you might find yourself not only with a debt consolidation loan payment but additional new credit card debt.
Situations when consolidating debt may be a good idea:
- If you have debt from multiple lenders at very high-interest rates.
- If you are unable to keep up with the number of payments to different lenders.
- If consolidating multiple loans and credit card balances will lower monthly payments and the total cost of borrowing.
Generally consolidating debt is a good idea but it is important to look at the terms and conditions of the consolidation loan. Look at fees, repayment terms, as well as the reputation of the lender. Learn more ways to achieve debt freedom.