As of December 2020, Americans held more than $14 trillion in consumer debt, much of which was tied up in student loans, credit cards, and car and mortgage payments. If you feel yourself drowning under a mountain of late notices, you might be considering a debt consolidation loan. Combining your debt into a single payment has advantages and disadvantages.
Advantages of Debt Consolidation
Debt consolidation Loganville GA is beneficial for several reasons. Most prominently, it simplifies your finances. Instead of multiple bills of varying amounts each month, you receive one bill for the same amount every month. A single financial statement is much easier to keep track of and budget for.
Consolidating your debt is also likely to lower your interest rates. Personal loans and credit cards have interest rates ranging from 11-16% and even higher, but debt consolidation loans can have interest rates as low as 6%, depending on your individual situation.
Finally, a consolidation loan will probably improve your credit over time. This is because you’re more likely to make payments on time. If you have credit card debt and keep the cards open, you could raise your credit even further, since open accounts account for about 30% of your score.
Disadvantages of Debt Consolidation
While consolidating debt is an excellent choice for many people, doing so does have drawbacks. Depending on the loan, you may pay upfront fees for loan origination, balance transfers, and closing costs. While not necessarily a drawback, it is also important to understand that a consolidation loan is not a fix-it-all solution. If you were living outside your means and continue to do so after consolidation, you could find yourself in debt again. Build an emergency fund and stick to a budget to help prevent it.
If you decide debt consolidation is right for you, research the lenders you’re interested in before committing to one. Not all consolidation loans are created equally. Consider whether the financial institution specializes in them, the terms of the loan, and whether the lender has a positive reputation within its industry.