The pros and cons of consolidated loans.
While consolidated loans are a popular approach to paying off debt, it's important to carefully weigh the advantages and disadvantages before taking out a debt consolidation loan.
In theory, consolidated loans can help to save money and reduce debt by taking out a new loan at a low interest rate to pay off bills and debts with higher interest rates. By reducing the amount of interest you owe each month, bill consolidation loans enable you to pay off debt more quickly and/or manage your monthly debt payments more easily.
But consolidated loans aren't always as effective as they seem. The debt consolidation business is a highly profitable industry, and those profits are often earned from uninformed individuals who take out loans without all the facts. If your credit rating isn't stellar, you may not be able to secure a loan with interest rates low enough to save you money. And while it may feel simpler to pay off a bunch of debts with a single new loan, you may actually end up paying more in interest over the course of loan, deepening your debt and making it harder to become debt-free.
Get help with consolidated loans from ACCC.
For information on how to pay off debt most effectively, contact the professional credit counselors at American Consumer Credit Counseling (ACCC). We offer free credit counseling and can help you determine whether consolidated loans are the best way to pay down your debt or whether other alternatives may be more effective.
As a nonprofit organization, ACCC is dedicated to helping individuals and families manage money more effectively and eliminate debt. Our certified and highly trained counselors are available six days a week by phone or in-person to answer your questions, review your options and provide a variety of free resources.
To help you determine whether consolidated loans make sense for your financial situation, our counselors will help you get a complete picture of your finances by documenting your income, expenses, assets and debts. With your financial goals in mind, we'll provide you with all of the options for getting out of debt, including other programs that may be more effective.
ACCC's alternative to consolidated loans
One possible alternative to consolidated loans is a debt management program. Rather than taking out a new consolidation loan to pay off debt, a debt management program lets you work with your current creditors to manage your debt more efficiently. Under ACCC's debt management plan, you'll make one simple monthly payment to ACCC, and we'll take care of paying your bills while working with your creditors for a possible reduction in interest rates, late fees, over-limit fees and monthly payments.