Debt consolidation is when you take out a line of credit or loan to pay off high-interest debt. When you consolidate your debts, you will only need to make a single monthly debt payment. This is instead of paying each of your debts separately.
Debt consolidation is worth considering when you are looking to pay off your debts. Also, when you struggle to pay more than your minimum payments. It makes sense when the interest rate on the debt consolidation loan is lower than the interest rates on the debt you are consolidating. By lowering your cost of borrowing, you can reach debt freedom sooner.
You can take out a consolidation loan from your financial institution. But, your financial institution does not have to offer you one. Your financial institution could deny you a debt consolidation loan because your credit score is too low.
As with any other type of financing, you will want to shop around when looking for a debt consolidating loan. When applying for two or more loans, try to do so within two weeks. Keep your credit applications in this time window. It is less likely to have a considerable impact on your credit score.
Most debt consolidation loans come with an affordable minimum payment. This is often an interest-only payment. Yet, you won’t find yourself any further ahead by making it. Aim to make more than the minimum amount to pay off your debts sooner.