Many consumers who find themselves mired in debt hope that a debt consolidation loan can help pay off the money they owe. What is a debt consolidation loan? It’s a debt relief strategy that involves taking out a new loan to pay off a variety of debts. Here’s a more formal explanation:
What is a debt consolidation loan?
A debt consolidation loan is an agreement with a lender that allows a person to make one payment a month to said lender instead of multiple payments to multiple creditors. In effect, debt consolidation loans combine your existing debts, such as student loan debt, into one loan with ideally a lower interest rate than that of the outstanding debts.
What is a debt consolidation loan designed to do?
In determining whether bill consolidation loans are right for you, it’s helpful to keep the purpose of this strategy in mind. What is a debt consolidation loan intended to achieve? Primarily, a consolidation loan should help to lower the amount of money you’re spending on interest each month. It should also simplify your finances and make it easier to stay on top of your payments. If the consolidation loan that you’re considering won’t help you achieve that, it may not be the right strategy for you.
What is a debt consolidation loan pitfall to avoid?
If you are deeply in debt, you may not be able to get the low interest rates that consolidated loans require in order to be effective. In that case, debt consolidation will just be shifting debt from one creditor to another. And some debt consolidation companies charge high fees, adding more to your debt instead of helping you pay it down.
Learn more about “What is a debt consolidation loan?” at ACCC
When you’re considering whether to take a debt consolidation loan, it’s a good idea to find debt consolidation assistance from a financial professional. That’s where the certified credit counselors at American Consumer Credit Counseling (ACCC) can help. We offer free credit counseling where you can get advice on how to consolidate credit cards effectively and determine whether consolidation is the best strategy for your financial goals.
What is a debt consolidation loan alternative?
At ACCC, we may be able to suggest some alternate strategies to help you get out of debt. What is a debt consolidation loan alternative? A debt management plan may be a better approach to debt relief, depending on your situation. Under a debt management program, you’ll work with a counselor to establish a budget that lets you pay down your debt each month, and you’ll make that payment to ACCC. We’ll be responsible for paying your creditors on time each month, and we’ll contact them to seek reductions in your interest rates, finance charges and other fees to reduce the total amount you will pay over time.
Get answers to questions like “What is a debt consolidation loan?” as well as what is a unsecured credit card.