If you are having a hard time repaying multiple loans, you may want to consider a consolidation loan. Consolidation loans, also referred to as “debt consolidation loans,” take several outstanding debts and consolidate them into a single loan. In other words, you take out a new loan and use that loan to pay off your other debts.
With a consolidation loan, you may be able to:
- Lower your monthly payments
- Arrange a longer period of time to repay your debts
- Obtain a lower-interest-rate loan
- Get the security of a fixed-rate loan
A consolidation loan can also be helpful if you are having a hard time managing your budget because of the constant inflow of bills. With a consolidation loan, you only have to keep up with one payment per month, rather than juggling bills from various lenders and creditors. You can even arrange to have your consolidation loan debited automatically from your bank account each month, so you won’t have to keep track of any paperwork.
Most of the advantages of debt consolidation are long-term, however, if you have only a small amount to repay, or will be able to repay your debts within a few years, it may not be the best choice for you.
It’s also important to understand that just because a consolidation loan may leave you with more money each month, it is not a magic bullet. You need to carefully examine your budget and change your spending habits. Otherwise, you will soon end up in the same predicament you were in before.