Debt consolidation allows borrowers to take on one loan in order to pay off multiple outstanding loans. Through debt consolidation, all your unsecured loans (personal loans, credit card debt, medical bills, or student loans) can be rolled over into a single loan that makes paying loans back easier and more manageable.
Usually offered by lending institutions, banks, and financial companies, there are a few different debt consolidation loans to choose from:
Here are some things to keep in mind about debt consolidation:
When it comes to debt consolidations, there are few myths you should be made aware of, including:
Consolidating your loans doesn’t always a guarantee a lower interest rate. For example, say you have a bad credit score and you applied for a debt consolidation loan; even if your loan is approved, you may not qualify for lower interest. In fact, your rate may be higher than some of the debt you’re having consolidated.
Even though you’re combining multiple debts into a single loan, you still need to pay the entire balance you started with originally. And while you may get more favorable loan terms, a consolidation usually extends your term – meaning you could end up paying more in the long run.
Consolidating your debt is just another way of saying that you’re restructuring your loan. Since restructuring your loan extends the length of time it takes to pay your debt off, you’ll likely accrue more interest, which can actually cost you more over time.
First and foremost, it’s important to understand that debt consolidation loans don’t get rid of your debt – they simply roll your debt over into another single loan, with the aim of making payment management easier.
If you’ve tried other options and you’re considering this route, it may help to speak with a non-profit credit counselor first. Non-profit credit counselors are financial experts who can help you assess your situation and guide you towards the right debt management solution for your situation. Just be aware of the credit counseling scams that could drag you into more financial trouble. As long as you choose a reputable credit counselor, and understand the terms and conditions involved, you should be on your way to becoming debt-free in no time.
Dealing with debt can feel challenging, especially when you are trying to pay back loans from several different creditors, like student loans, credit cards, medical bills, or other types of debt.
With all the ways you can accrue debt, you might be wondering what options you have available to become debt-free.
Today, many borrowers consider a debt consolidation loan as their best option for escaping debt and getting back on track financially.
If you feel that debt consolidation is the right solution for you, DebtMD has vetted the top rated debt consolidation companies in the industry.
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