If you have debt and you feel like you cannot seem to come up from under it, you may have thought about debt consolidation at least once to take advantage of lower consolidation loan rates. You may be wondering about certain questions such as what exactly debt consolidation is and whether or not debt consolidation is right for you and your financial situation.
No one wants to be in debt. It may limit what you are able to do in life, you may feel held back, you may feel not in control of your life, and that your debt may be piling up higher and higher due to interest costs. In many cases, debt consolidation may be what you need in order to gain control of everything that is going on in your life.
In case you are wondering, debt consolidation is when you take a new loan, usually at a lower interest rate, to pay off all your old loans so that you just have a single monthly loan debt to one lender to pay each month.
Before you do that though, there are many things to think about before you decide to consolidate your loans, with the main focus most likely being the consolidation loan rates out there. Below are the different areas you may want to think about before taking the next step to consolidate any or even all of your debt.
What are your monthly payments like?
By consolidating your different loans, you may be able to bring your monthly payments down or even the life of your debt to a smaller time frame. This is because with lower consolidation loan rates, your payments will go down. This may help you save hundreds or even thousands of dollars over the lifetime of your loan.
What is the time period that is left on your loan?
The average debt consolidation loan is for around five years. So, if the amount you have left on your loans is just two years, then you may not want to consolidate because you may be paying just as much in interest over the lifetime of your loan by expanding the pay period.
How high is the interest rate on your current debt?
Different types of debt have different interest rates. Debt from different companies and different industries also have varying interest rates.
Depending on how high your interest rate is, you may be able to consolidate your debt into one consolidated loan that carries a lower interest rate.
For example, if your student loans have an interest rate of 10% (such as if they are private company loans), then you may be able to consolidate them and save even a few percentage points. If you have credit card debt, which usually have very high interest rates of over 20%, then you most likely would want to consolidate those as well so that you can take advantage of lower consolidation loan rates.
In the two examples above, consolidating your loans and taking advantage of lower consolidation loan rates most likely will mean that you can save money on interest fees on your debt. This is because you can save money over the lifetime of your different loans by consolidating. Consolidating your debt with lower consolidation loan rates also may help you pay off your debt quicker so that you can finally have your debt gone. Credit card interest rates are usually around 24% or 25%, which may mean that unless you pay off your credit card bill in full, then it can be very hard to stop the vicious cycle of credit card debt as it would just keep building and building due to high interest rates.
In the end, the decision is up to you. Lending Tree has a debt consolidation calculator that you can try out here.