Is a Debt Consolidation Loan Worth It?

Do you have a lot of debt? Are you struggling to make your monthly payments? If so, a debt consolidation loan may be a good option for you 😉

So, what’s debt consolidation? It’s the process of taking out a new loan to pay off existing debts. Some of the benefits of include:

That said, there are also some risks:

So, if you’re considering debt consolidation, it is important to weigh the benefits and risks carefully. You should also compare interest rates and fees from different lenders before you choose a loan.

Here are a few steps to guide you if you choose to go down the debt consolidation route:

  • Step 1: Make a list of your current loans and credit cards. Include the total balance, interest rate, minimum monthly payment and total remaining payments. You should also consider your credit score, since it will affect the interest rate you are offered.
  • Step 2: Decide what kind of debt consolidation option you’d like. You can choose from a personal loan, home equity loan or balance transfer credit card.
  • Step 3: Get quotes from multiple lenders and compare APRs, terms and total interest paid.
  • Step 4: Apply for these loans and credit cards within two weeks to avoid multiple hard inquiries on your credit report - they usually just do a soft pull to get you a quote.
  • Step 5: Use a debt consolidation calculator to compare offers and choose the lender that is right for you.

Bottom line: Debt consolidation can be a helpful tool for managing debt, but it is not a magic bullet. It is important to use debt consolidation responsibly and to make a plan to repay the loan as quickly as possible.

Debt Consolidation Loan vs. Debt Consolidation

• Debt consolidation is a process in which you work with a third-party company to negotiate with your creditors to lower your interest rates or monthly payments. The third-party company will typically charge you a fee for their services, and they may also require you to make a monthly payment to them. But beware, this is often much pricier than a debt consolidation loan and often hurts your credit score as it involves settling your debts.

• Debt consolidation loans are a type of personal loan that you can use to pay off your existing debts. You will receive a lump sum of money from the lender, which you will then use to pay off your credit cards, medical bills, or other debts. Once you have paid off your existing debts, you will only have one monthly payment to make to the lender.

Article written by
The app that upgrades your money mindset and debt, for free

Debbie is an app that uses behavioral psychology and prizes to help you pay off debt for good. The app rewards you for paying off debt with lower interest rates on your current credit, as well as cash. Start our free money psychology course today to get qualified. Start Now →

Related articles

Ready to be financially free?

Join here. Terms apply.

Start now