Debt Consolidation

The term 'debt consolidation' has been used to described many different repayment options over the last couple years. When we say debt consolidation, we are referring to using a personal loan to pay off your existing credit cards (or other problem accounts) so that you only have one account you're paying each month.

While the idea of a single monthly payment and a lower interest rate may seem quite appealing, there are a few things you should consider before jumping in. First, you should do the math on your cards and figure out how long it will take to pay them off at your current payment, then compare that to the term of the loan you're considering. Even at a lower rate, a debt consolidation loan can still cost you more compared to if you just paid your cards down faster.

Second, you should consider what payments are being offered to you with the loan. Are you at least paying that much towards your credit cards now? If it's more, what would happen if you just paid that amount towards to your cards without consolidating? If the payment is less than what you're paying now, you'll likely end up paying more in interest over time.

Lastly, you should consider what your plans are once you consolidate. Are you going to cancel the cards? If not, you're just adding another creditor into the mix and, like another log in the fire, it's going to keep the debt fire burning. The last thing you want to do is take out a loan, pay off your cards, and charge them up again - then, all you've done is put yourself in a completely worse situation.

Debt consolidation loans can help a select group of people. We recommend you do the math on your accounts and sit down with a trusted advisor before taking out a new loan.