No one intends to get into debt trouble, but life is complicated and expensive. You may have been forced to run up your credit cards and take out a personal loan or two. Making these installment payments can drain your bank account and cause you overwhelming stress. A debt consolidation loan may be the answer, but you need to be well informed before you decide.
Government experts warn consumers that a debt consolidation loan can be a mixed blessing. By consolidating your debts, you will probably lower your monthly payment and simplify your bill paying process. However, you may incur fees from the consolidation company, and the initial low-interest rate may be a “teaser” rate that only lasts for the first six months or so. You also need to consider the length of the loan. You could end up paying less per month but have to make payments for months or even years longer. Before you sign on for a consolidation, do the math to determine exactly what the new loan will cost you.
Some credit cards offer excellent initial interest rates for transferred balances. You may be tempted to transfer all your card debt to a single company. While this option may initially be helpful, remember that the low rate might only apply to an introductory period. Do your due diligence before taking this route.
If you have a significant amount of equity in your house, a home equity loan may be the answer. You can usually get an attractive interest rate on these loans, and the interest is tax deductible. Of course, this path comes with some risk. If you can’t make the payments, you could risk losing your home. Before you choose an equity loan, look for the lowest possible interest rate and make certain that you can meet this monthly obligation.
You can find a way to consolidate your debt, but you need to carefully research all your options. Find out what the change will cost you in the long run before you commit to a loan or a balance transfer.
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