According to Debt.org, more than 189 million Americans have credit cards. On average, each household with a credit card carries $8,398 in credit card debt. It can seem all too easy to continue adding to this debt, but nearly impossible to get rid of it - especially with high interest rates.
Debt consolidation is the combining of multiple debt balances into one new loan, with hopes of getting a better interest rate and paying off your debt faster. This is often a great option. However, there are a few instances when debt consolidation might not be right for you.
Benefits of Debt Consolidation
- You may quality for a lower interest rate. Cutting your interest means more of your money will be going towards the principal balance - not interest.
- It is likely to raise your credit score - if utilized properly. Although you may see a slight decline in your credit score at first, as long as you make payments on time and don’t rack up more debt, your score is likely to increase in the long run.
- You will only have one bill to pay. Rather than multiple credit card bills each month, you will only have to make one payment, hopefully minimizing any possibility of late fees.
Disadvantages/When Not to Consolidate Debt
- When the loan’s interest rate is no better than what you’re currently paying. The unfortunate reality of credit card debt is the possibility that you may not qualify for an interest rate that is more favorable than that of your credit card.
- If you are just going to continue charging up debt on your credit cards, a debt consolidation loan could be a huge mistake. Ask yourself honestly, once you have freed up your credit cards, are you going to continue incurring debt?
- When does a 0% APR balance transfer makes more sense? Some credit card companies offer promotional interest rates for a certain period of time (typically 8-15 months). If you think you will be able to pay off your debt within those terms, a balance transfer may be a great option for you. Be mindful that many credit card companies typically charge a transfer fee (usually around 3%).
A debt consolidation loan is a great option for people serious about paying off their debt, but it is important to do your research and weigh all of your options before making any financial decisions. Have questions about debt consolidation? We're here to help - call, email, or visit us at any of our branch locations.
Guest Blogger: Emily LaPlume is a 24 year old entrepreneur, currently living out of her self-converted Ram Promaster with her rescue pup, Luna. In 2016, Emily founded Saturday Swimwear, a women’s, handmade, sustainable bikini company. She has been traveling and working out of her conversion van since June 2019, stopping at artisan markets across the USA. Follow her on Instagram @elaplume and @saturdayswimwear to stay up-to-date on her travels and to check out her swimsuit company.