Struggling with a loan? If you’re considering debt consolidation, you’re not alone, as many find it a great way to gain greater control over debt, but it’s not always the right option in all situations. In this article, we’ll check out ways to help you decide what’s best for you:
Understand the impact. When consolidating debt, you usually aim to lower the interest rate you pay on outstanding balances. This is a good objective, but the benefit may be lost if the loan will take a longer repayment timeframe and you end with more time to pay it off. A longer loan means higher interest repayments. Period. Therefore, no matter the appeal and convenience debt consolidation can provide, it could cost you more if you can’t pay faithfully.
Check the numbers. Review whether you can find consolidation alternatives. You may try negotiating your loan terms by getting in touch with your creditors and avoiding other consolidation fees.
Another consideration is whether you should add your loans in a consolidation. Let’s say you have multiple credit cards with rates of 16% to 18%, added to a student loan with a 4% interest rate. You acquire a balance transfer card with a rate of 12% after the initial low-rate promotional period. Reassigning your credit card balances to that card can reduce the rates you pay on your loan, but the 12% rate will be higher than your original student loan rate. For that reason, leaving low-interest loans out of the consolidation is okay.
See your options
You’ll find multiple options for consolidation, so don’t be hasty before finding all the crucial information you need. Possibilities include:
Balance transfers. Try pooling your money and moving it to a balance transfer account or credit card. You can also try consolidating your loans with a line of credit, like a home equity loan.
Debt settlement companies. These organizations can negotiate with your creditors on your behalf to see if they have options like letting you pay a lump sum that’s less than your total current debt. You deposit money in your savings amount monthly to accumulate a lump sum.
As you work with one of these companies, ask:
- The duration to make payments. Ensure that you can make all the payments required to settle your debt.
- Whether you’d have to stop paying off creditors as you build a lump sum. With this, you could face penalties such as late fees and even a drop in your credit score. Think about working with companies that can’t explain the after-effects of stopping debt payments.
- What fees the company will charge. Be mindful if a company asks for fees before settling your debt, which isn’t allowed under many country rules. If you notice that the company uses an aggressive sales pitch or makes too good to be true offers, walk away.
- You can find more information about specific companies from a state attorney general’s office, a local consumer protection agency, and reviews on the company’s site.
A debt consolidation plan can be a great tool to manage your loans. It’s usually developed with your creditors and a counsel and aims to consolidate your loans at a lower rate plus a longer repayment period. The agency usually receives a small fee. Check out the debt consolidation plan from a top financial institution to learn more about how it can ease your loan burden.