Not only can it be overwhelming to juggle several loans, it can also be potentially costly. Rather than keeping track of multiple interest rates and due dates, it may be beneficial to pay down debt through a personal consolidation loan. This type of loan allows you to roll any or all of your outstanding loans into a single payment. This not only simplifies the repayment process, but can also result in a lower interest rate. Additionally, if any of your current loans have an adjustable rate, consolidating with a fixed rate loan can prevent any changes in your monthly payment amount.
Advantages of Consolidating
Another way to save money by consolidating your loans is to select a longer repayment term. Most lenders offer repayment periods between two and five years, though some may go up to seven. While you’ll pay more interest over time if you select a longer term, it can help ease your financial burden if you are having difficulty making monthly payments.
A potential perk of using a personal loan to consolidate credit debt is an increase in your credit score. This varies depending on your individual situation, but your score can go up if your new loan lowers your debt utilization ratio.
Picking the Right Lender
Both traditional financial institutions and alternative online lenders offer consolidation loans for individuals. Look for a lender with no or a low origination fee in addition to competitive rates. Also make sure there are no prepayment penalties so that you can make extra payments as you can to get out of debt sooner. It never hurts to shop around and if you prefer a particular lender who offers a slightly higher interest rate than another one, try negotiating.
Make sure that your new monthly payment is less than your old payments combined, otherwise consolidating probably isn’t the best option for your situation.
Debt Relief Programs
Rather than consolidating your debt into one new loan, you also have the option to enroll in a debt relief program. If you have a lot of debt that you don’t anticipate being able to pay off completely, a debt relief company may be able to negotiate with your creditors on your behalf. In return for the collection agency accepting a lower total payment, you agree to pay off the remaining amount in a lump sum. Also note that debt relief will have quite an impact on your credit score.