Debt consolidation is a means of debt refinancing that involves taking out a new loan to pay off other loans and credit card debt.
In general, debt consolidation loans can reduce the amount of interest you pay each month, reduce the number of creditors you have to deal with, and shorten the amount of time it will take to pay off your debts as long as you qualify and keep with the program terms.
If you’re struggling to pay high interest rates on a lot of unsecured debt, consolidation may seem like an attractive solution.
Credit counseling through a reputable non-profit agency is almost always a better alternative.
Credit counselors work to help you negotiate with your creditors and formulate a debt management plan (or DMP) to help you pay off your existing debts.
Generally, personal loan interest rates are lower than interest on other types of unsecured debt, so you’ll save money over the life of the debt.
They’re also fixed-rate loans, so the interest rate won’t fluctuate the way a credit card rate can.Reducing your monthly payment often means that it will take you longer to pay off your debt and the debt will be more expensive over time, but some people see this as a necessary trade-off to avoid defaulting.If your credit is good, you may be able to qualify for a personal loan that you can use to pay off high-interest debts such as credit cards.Some credit card issuers offer very low rates or even zero interest as a promotion to entice new customers to open accounts with them or transfer balances from another card.After the promotional period ends, the interest rate typically goes up.This approach can work if you know you’ll be able to pay off the entire debt before the promotional period expires.