Debt consolidation is a popular strategy for managing debt, and it involves merging all of your debts into a single loan. This can help you get a lower monthly payment, pay off your debt sooner, increase your credit score, or simplify your financial life. Depending on the terms of your new loan, it could also have lower interest rates than what you're currently paying. Before you decide if debt consolidation is the right way to pay off your loans, it's important to understand the pros and cons of this popular strategy. If you have excellent credit, high income, and are borrowing a relatively small amount of money, it can be easy to get approved for a debt consolidation loan.
However, if money is tight or if you tend to overspend, it's best to avoid applying for a loan as it will be difficult for you to meet monthly payments or risk accumulating even more debt. When considering debt consolidation, it's important to take some time to develop healthy financial habits. Keeping track of several debt payments each month can be daunting, so combining debts could simplify the number of different payments you must make each month. Plus, if your debts (excluding the mortgage) represent less than half of your income, that's another indicator that debt consolidation might be a good fit for you. Banks, credit unions, and installment loan lenders can offer debt consolidation loans. Ultimately, the CFPB states that debt settlement companies could leave you in more debt than when you started.
To help you decide if debt consolidation is the right way to pay off your loans, we'll show you the pros and cons of this popular strategy.
