- A debt consolidation loan consolidates all your debts into one loan with one monthly payment.
- Consolidate your debt if it leads to a lower interest rate and more importantly, reduce the overall cost of your debt.
- Be certain you are able to make your monthly payments for a debt consolidation loan.
Consider Bill Consolidation to Consolidate Your Debts and Save
When you are knee-deep in bills, debt consolidation might be the last thing on your mind. However, this bill consolidation might be a great way to reduce your monthly bills to one single payment and lower your total monthly payment as well. Because debt consolidation is taking out another loan, sometimes using your home as collateral, you need to know as much as you can about debt consolidation before you approach a lender.
Reduce Your Bills: Debt Consolidation
Outside of your monthly expense and necessity purchases, you probably have a slew of bills that come every month for credit cards, loans, and other debt. Your interest rates might be very high or your monthly payment might be beyond your means. Dealing with these bills each month can be frustrating and it is hard to keep track of each of them. When you consolidate your debt, you take out one big loan to cover your current debt and any fees associated with early repayment. Your monthly payment is reduced if you are able to get a lower overall interest rate or you agree to a longer term on your loan.
Pay Off Your Bills: 4 Debt Consolidation No-No’s
There four instances when it is not a good idea to consolidate. Don't consolidate your bills if:
- You are close to paying off your debt. Suffering through high interest rates will save you more money in the end if you are only a few years from paying off your debt than consolidating and paying more in interest over the years because your term is longer.
- You cannot make the monthly payment. Because most debt consolidation loans are in essence home equity loans, meaning the lender secures your loan against your home, your inability to make the monthly payment could cost you your house. If you cannot make minimum payments on your bills, debt consolidation might only put your home in jeopardy unless you can get a monthly payment on your new loan that is significantly lower than the current combined total of your bills. When you are talking with your lender be sure to ask if your loan is secured or unsecured. An unsecured loan will usually carry a higher interest rate, but will not require you to turn over the keys to your home the first time you default.
- Your interest rates on your current loan are lower. That may seem like a no-brainer, but the lure of taking a high interest rate over a long term and reducing your monthly payments can seem tempting. Your temporary relief from your bills will cost you a lot of money over the long run. Do the math and figure out how much it will cost you in interest to pay-off your loan before you sign on the dotted line.
- Talk to one lender or service provider. Learn all of your options, and the pros and cons of each, before you decide to consolidate. Consolidating might be a great choice if you can find a trustworthy lender who can offer you a low interest rate. Remember, you can always take your paperwork home and read it more carefully or have your lawyer read it before you sign. A good lender will not object if you ask to do so. In some cases, credit counseling or learning how to budget on your own might be a better option, but you will not know until you take a look at the interest rates and terms available to you.
A final thought: Do not lock yourself into one tactic or strategy before choosing a course of action. Sometimes your first thought or the easiest tactic may not be the best long-term solution.