Millions of Americans are struggling with debt right now. You’re not alone. There’s more than $13.8 trillion of U.S. consumer debt right now1 — from college loans to credit card debt to home and auto loans. According to Experian, the average U.S. household uses at least three credit cards, totaling more than $13,000 in credit debt.2
Most people can only afford to pay the minimum. Sometimes it feels impossible to repay principal and get ahead. However, there is an alternative. If you’re struggling under constant debt, you should see consider how a debt consolidation loan could lower your monthly payments and minimize interest rates.
Debt consolidation loans are the answer to chronic debt that most creditors don’t tell you about. Here’s what you need to know:
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What Are Debt Consolidation Loans?
Debt consolidation loans combine your total debt into a single loan. The lender essentially pays off your debt and combines all outstanding totals into one monthly payment.
Typically, you can use these to pay off payday loans, credit debt, or medical bills. But the biggest advantage to debt consolidation loans is the lower interest rate and monthly payment.
If you’re one of the millions of Americans drowning in debt today, there are options. Simplify your debts, instead of paying different lenders, and missing due dates because you can’t keep track. With one loan, one monthly payment, and a lower interest rate, you can even pay off your debts quicker.
However, debt consolidation loans should be considered carefully. Make sure to research some of the following pros and cons before deciding which debt solution may work for you.
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The Benefits:
- Combine debt into a single loan and monthly payment
- Simplify payments, make due dates on time
- Keep consistent, payment never changes
- Get a lower interest rate
- Deduct taxes on any interest paid
The Disadvantages:
- May ask for collateral, such as car or home
- Avoid “spiraling,” or assuming extra debt, after supposing you’ve reduced your debt
- Enact hard inquiry on your credit report, which may temporarily lower credit score
- May include fees
Consider What’s The Best For You:
… A Balance Transfer Card?
One popular debt consolidation choice is a balance transfer credit card. Some opt to roll their outstanding debt into a single card with the lowest possible interest. Depending on your finances, a balance transfer card could be a savvy, or horrendous, decision.
A balance transfer card functions much like a debt consolidation loan. However there are some key differences. Debt consolidation loans can be applied to any outstanding debts. Balance transfer cards only for credit cards, not other debts, such as a car or student loans.
… Or A Debt Consolidation Loan?
Balance transfer may carry serious consequences. Especially if you can’t keep up with high monthly payments. There’s usually a transfer fee in addition, so you’ll lose money there as well.
Many companies run promotions for no-interest or low-interest introductory rates. But after that the percentages can skyrocket, racking up huge amounts of interest. If you choose this route and can’t pay off your full amount, you’ll fall even further behind.
Debt consolidation loan is a more sensible option for most consumers. If you don’t expect to pay off all of your debts in just a few weeks or months, and especially if you’re dealing with multiple debt sources (like auto, student, housing, credit card, or other loans), a debt consolidation loan may help lower your interest rate and enable you to pay off your loan faster. Take your time, lower your payments, and save money in the long run!
Choosing Your Debt Consolidation Partner
So, now you’re ready to take the next step. It’s time to figure out which debt consolidation partner is the best choice for you. First, let’s see what kinds of loans you qualify for. Search online for debt consolidation loans offered for your specific debt amount, types of debt, and credit score. Then compare the different options to make the best choice.
The most important thing to consider is your interest rate. Then account for any repayment options, fees or other penalties you might incur. Be sure to ask for the full amount of interest that you’ll pay over time. Make sure you get the best deal. Look around. You might even want to apply to multiple loans.
1 Debt.org
2 Experian, Is a Debt Consolidation Loan Right for You?
