If you are wallowing in debt from credit cards, loans, and even medical bills, and just making the minimum monthly payments, you might consider debt consolidation as a way to help lower your interest as you are paying off these debts.
Should you consolidate your debt? Let’s go over the pros and cons of debt consolidation, and other options are as well, so you can decide what will work best for you.
What is Debt Consolidation?
Consolidating your debt with a single loan just means you are restructuring your debt. Yes, you’ll have lower payments, but the term of your loan is extended for a much longer time period. This could mean you are hanging onto debt longer. The interest rate is usually decided on by the lender and can vary based on your credit history and credit score.
The Pros and Cons of Debt Consolidation Loans
- Credit cards get paid off completely.
- Interest rate CAN be lower.
- Monthly payments will be less than they are now.
- You will only have to deal with one single payment each month.
- Debt consolidation loans can keep you from having to file bankruptcy.
- You will stay in debt much longer.
- You will pay almost twice as much in interest and fees over the long haul.
- Your interest rate can increase with time.
Make sure you understand all the fine print before you decide to take this route.
Other Options to Pay Down Debt
There are other routes as well to pay off debt you could consider as well.
Take on a temporary second job.
This is with the intent that ALL income goes to pay debt! This can make life hectic, but the reality is that people who choose this route feel less stress from working two jobs than they do from worrying about how they’re going to pay their bills for the month.
Paying off the smallest of your loans first.
This is called the Snowball Method. Once you pay off the smallest balance, that monthly payment gets added to the monthly payment on the second smallest. Then, you move up to the next one, etc., etc., until everything has been paid off.
Transfer all of your balances to one credit card.
Also known as balance transfers.
By simplifying multiple debt payments, it can help with stress, but you could be still left with a high interest rate.
You need to pay close attention if you are taking this route. Some cards advertise temptingly low interest rates, but could be just an introductory rate that only lasts for a short time before the rate increases.
Take control of your spending
Work to get the debt paid off, and also start on a budget so you don’t get yourself back in debt again.
Talk to a financial advisor like Ballast Associates
If you need help with your debts, you should get it. There are financial advisors, debt repayment programs, and credit counseling agencies that can help you negotiate lower interest rates or consolidate responsibly.
It won’t be easy, but, once you begin, you will feel so much freedom!