Debt Consolidation can be a good way to take control of your finances.
One of the benefits of debt consolidation is that you make it easier to get out of debt. You will only need to pay one loan instead of several loans that you have to pay each month. And you don’t have to decide which of your debts to focus on first, as there is only one loan to worry about.
If you make smart choices about debt consolidation, you actually get an even greater advantage: save money on the interest you pay on your debt.
But whether your consolidation loan will save you money – or is it worth it – will depend on answering one big question: What type of debt consolidation will you use?
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Which type of debt consolidation is right for you?
Before consolidating debt, research your options and choose the right type of debt consolidation.
The choice of the best loans for individuals according to The Ascent
Looking for a personal loan but don’t know where to start? Choosing the best personal loans selected by Ascent will help you clarify existing offers so you can choose the best one for your needs.
There are some loans that are specifically marketed as “debt consolidation loans” to people who owe a lot of money. They are often expensive and do not have favorable terms. But there are also a number of potentially good options, including:
Let’s take a look at the pros and cons of some of these options.
- Personal loans can be easy to apply, get approval quickly, and have lower interest costs than many credit cards. But they have higher interest rates than the starting rate for a balance transfer or the rate you would pay with a home loan.
- Balance transfers good for consolidation credit card debt… This is because you are transferring debt from your existing cards to your new ones. balance of the transfer card. They can work well if you are eligible for a balance transfer card offering a 0% promotional interest rate. The downside is that your 0% rate is only valid for a short time – often around 12 months. This way, you can go back to where you started with high interest charges after the initial offer period expires.
- Loans secured by real estate are an option for homeowners who have a lot of home equity. The initial cost of approving a loan can be very high, although interest rates are usually very low. The big drawback is that you put your home at risk by using it as collateral. You may also end up underwater (due to the fact that your house is worth more than it is worth).
Researching each of these loan options is critical in order to make sure that consolidation is indeed a smart move. After all, you don’t want to take out a loan to get your debt under control and then regret it because it costs you more or makes it impossible to sell your home when you need it.
Other Important Considerations About Debt Consolidation
It is not only the method of debt consolidation that is important. The specific conditions also affect whether debt consolidation is a good idea.
First of all, you need to make sure that you receive a lower interest rate than the debt that you are consolidating. Otherwise, you will have to pay higher borrowing costs, which doesn’t make sense.
You also need to consider the timing of the payment. If you lower your interest rate by taking out a home equity loan, but it takes you 30 years to pay off your debt, when you would have to pay it back in two years if you kept the status quo, then your situation is worse.
The same is true if you get a personal loan with a much longer maturity or if you cannot pay off the balance transfer before the 0% rate expires. You may be stuck with a larger balance at a higher rate than you paid before.
The Ascent selects the best debt consolidation loans
Want to pay off your debt faster? Check out our list of the best personal loans for debt consolidation and cut your monthly payment at a lower rate.
By carefully considering how to consolidate debt as well as the terms and conditions, you can avoid unwanted results and make sure your consolidation makes sense. Take the time to carefully consider your options and calculate before moving on, so you don’t regret it.