What Are the Benefits of Debt Consolidation?

What Are the Benefits of Debt Consolidation?

consolidation loan interest rate

Consolidation loan interest rate is a financial strategy that can reduce your overall interest costs by replacing multiple debt payments with a single, predictable loan payment. The monthly payment amount and rate depends on the lender, your credit history, the loan amount and the loan term (from one to seven years). You can use a debt consolidation calculator to help find the best option for your situation.

A common way to consolidate debt is with a personal loan, but you may also consider a balance transfer credit card or home equity loan. Regardless of the method you choose, you should aim to find an interest rate that’s lower than the average rate of your existing debt.

Single Monthly Payment

Juggling several debt payments on varying due dates can be confusing. With a debt consolidation loan, you have a single payment due each month, making it easier to stay on track with your budget. The goal is to pay off your debt as quickly as possible so you can stop paying interest.

Potential for Savings

A key benefit of a debt consolidation loan is that it can save you money on interest costs. If you’re able to find a loan with a lower interest rate than the combined rates of your credit cards, then you could save significantly.

Not Suitable for Bad-Credit Borrowers

Many lenders reserve their lowest interest rates for borrowers with the highest credit scores, meaning that if you have fair to poor credit, it’s likely you won’t qualify for a debt consolidation loan with a low enough rate to make it worth your while.

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