Consolidating debt bad idea
It can also make it less likely that you will fall behind on your payments and risk harming your credit.
For these reasons, taking out a personal loan to consolidate higher interest debt can often be very beneficial.
Which is why a consolidation loan can often prove to be a better option: it may allow you to get a lower interest rate, which would save you money over the long-run.
2) High monthly payments People with lots of debt also frequently struggle with high minimum payments – which are sometimes more than they can pay each month.
Consolidating debt with a loan could reduce your monthly payments and provide near term relief, but a lengthier term could mean paying more in total interest.
When people mention debt consolidation, they are usually referring to one of two different methods.
If you wrap it into a home equity loan, you are offering your home as collateral.
If you don’t pay off the home equity loan a lien will be imposed against your home.
Getting out of debt isn’t quick or easy, but it’s the first step to achieving lasting financial health. It simply means you’re taking out one loan to pay off a bunch of loans—or consolidating the debt to one payment.
Since the interest rate on a personal loan is often considerably lower than on a credit card, and the repayment term potentially much longer, the consolidated payment may be much lower, as you indicated.
If you are struggling to keep up with your monthly payments, consolidating your debt in this way can certainly help alleviate financial stress.
The reason this can be helpful to people with a lot of debt is that it can solve three of the worst problems you face: 1) High interest rates Some types of debt (particularly credit cards) can have extremely high interest rates – up to 25% or more.
If you’re in that kind of situation, there’s a good chance your debt will grow faster than you can pay it off.