Debt consolidation and the idea of a single debt payment is an appealing thought for many individuals who are swamped with numerous monthly credit card payments or other debt. Interest rates through bank loans are typically lower than credit card rates, which allows for quicker debt reduction.
Benefits of a debt consolidation loan:
- Lower interest rates which can take years off of your repayment plan. You just need to assure that the APR you are receiving from the financial institution is lower than what you are currently paying.
- You only have one account payment.
- A higher credit score after paying off the balances on your credit cards.
There are some drawbacks. If you close the credit cards once they are paid off, then your credit score could decrease due to the lack of credit capacity. If you choose to keep your credit cards open, you will need to exercise restraint and not run up your credit card debt again. If you do overspend using your credit cards, you will have credit card payments in addition to your debt consolidation loan payment.
Our certified credit counselors can talk to you about this option and help you determine if a debt consolidation loan is the best solution for your debt repayment.