The main things you need to know about debt consolidation loans are that they’re large loans used to pay off several other smaller debts, they help borrowers simplify and better manage their finances, and your goal should be to get a better interest rate than the average rate of your other loans.
Consolidation simply means to combine. And in the case of debt consolidation, you’re combining your debts into one new larger debt. Borrowers who choose to consolidate do so because it’s much easier to focus on one monthly payment than several. If your credit card debt is starting to get a bit out of hand, it may be a good idea to consolidate the debt from several credit cards into one new personal loan.
It can definitely be overwhelming to pay several different credit cards and loans every month. If it makes budgeting and managing your finances easier to only make one payment, then consolidation may be worth it. The other potential upside is that your new consolidation loan could possibly have a lower interest rate than the average rate for your other loans. This would save you money in the long run.
The best way to get a better rate would be to get your consolidation loan from a bank or credit union. These places tend to offer lower interest rates for personal loans. If you can get approved for one, just make sure the interest rate works for you. Start by finding the average interest rate for all the debts you’d like to consolidate. Then compare that to the rate the lender is offering you. Try to negotiate a lower interest rate if possible.
Consolidating your debts can be a very beneficial thing to do for your finances. If you have a less-than-perfect credit score it can be tough to find a good and affordable consolidation loan. This is because the amount you can get may be lower, and the interest rates may be higher than traditional bank or credit union loans.
But keep searching and doing plenty of research on loans and lenders, and you may be able to find the right loan for your financial needs.