Debt can be incredibly stressful, especially when you're struggling to make payments each month. Any relief at all is usually welcome, even if it's not the best answer for your situation - and there are lots of "solutions" out there that really aren't a good idea. But what about debt consolidation loans? You've heard the term, probably many times. The idea may have been floating around your head for quite some time now, but you're just not sure if it's the best plan for your situation. Here's what you need to know about debt consolidation.
There are several benefits to debt consolidation loans, though it's up to you to determine if they'll apply for your situation.
Oftentimes, debt consolidation loans do actually lower your monthly payment. If you have multiple lenders, you can usually combine all of your loans into one large loan, making one payment each month. Sometimes, this payment may be lower because you're only making one minimum payment instead of several.
If you have several loans with very high interest rates, it's possible that a debt consolidation loan will actually lower your monthly interest rate.
Once you've decided to get a debt consolidation loan, you'll need to research the best company for your loan. There are lots of debt relief companies available, though they don't all work the same. Debt consolidation is a big financial decision, just like any other loan. As you're considering different loan programs, ask yourself these questions:
Most of the time, people get in too much debt because they spend more money than they make. While it's often a result of crisis or emergency, sometimes it's a money management problem and nothing else. If you take out a consolidation loan, you'll feel relief from the stress of debt, but you can fall back into the trap if you aren't careful. While a debt consolidation loan is a great idea for getting back on track financially, you should also strive to live within your means in the future. Many debt consolidation companies provide this service with their loan programs. If you think you would benefit from credit counseling, it doesn't hurt to ask if it's an option.
Unfortunately, not all debt consolidation companies are trustworthy. To evaluate the honesty of a company, ask your friends and family if they've used the service before, check online reviews from other consumers, and ask if the company is accredited. You can also check their rating with the Better Business Bureau.
Most debt consolidation loans have a fee, but some companies charge a higher fee than others. It's best to compare the fees and interest rates from several companies to find the one that's best for your financial situation.
You've probably heard the terms "debt settlement" and "debt management" along with "debt consolidation." Please note that these are not the same service. Debt consolidation involves combining your debts into one loan with one monthly payment, but debt management and debt settlement companies don't actually offer loans. Instead, they attempt to negotiate better terms or balances for the loans you already have. With these agencies, the risk is higher than with debt consolidation loans, and some of these companies aren't reputable.
For most people, a debt consolidation loan can bring welcome relief from the stress of debt. However, you should always practice due diligence by finding a reputable loan company with reasonable fees and interest and an honest track record. And remember to make your payment on time so you don't fall back into old habits.