Thinking of consolidating your debts? This is the most important question you will need to answer

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Debt consolidation can be a great way to take control of your finances.

One of the benefits of debt consolidation is that you will simplify the process to get rid of your debt. You will only have one loan to pay instead of having multiple loans to pay each month. And you won’t have to decide which of your debts to focus on first, since you only have to worry about this one loan.

If you make a smart choice when it comes to debt consolidation, there is actually an even bigger benefit: saving money on the interest you pay on your debt.

But whether your consolidation loan saves you money or costs you money will depend on the answer to a big question: what type of debt consolidation will you use?

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What Type Of Debt Consolidation Is Right For You?

Before you consolidate your debt, research your options and choose the right type of debt consolidation.

Ascent’s selection of the best personal loans

Are you looking for a personal loan but don’t know where to start? Ascent’s choices for the best personal loans help you demystify the offers available so that you can choose the one that best suits your needs.

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There are some loans that are specifically marketed as “debt consolidation loans” for people who owe a lot of money. Often they are expensive and do not have favorable terms. But there are also a number of potentially interesting options, including:

Let’s take a look at the pros and cons of a few of these options.

  • Personal loans can be easy to apply, quick to approve, and have lower interest charges than many credit cards. But they have higher interest rates than the starting rate for a balance transfer or the rate you would pay with a home equity loan.
  • Balance transfers are good for consolidating credit card debt. This is because you are moving the debt from your existing cards to a new balance transfer card. They can work well if you qualify for a balance transfer card that offers a 0% promotional interest rate. The downside is that your 0% rate is only valid for a short time, often around 12 months. So you could end up where you started with high interest charges after the initial offer period expires.
  • Home equity loans are an option for homeowners who have a lot of equity in their home. The initial loan approval costs can be very high, although interest rates are generally very low. The big downside is that you are putting your house at risk by using it as collateral. You could also find yourself underwater (due to more than your home’s value).

Researching each of these loan options is crucial in making sure that consolidation is actually a smart move. After all, you don’t want to take out a loan to get your debt under control and find yourself regretting it because it costs you more or makes it impossible to sell your home when you need it.

Other Key Considerations Regarding Your Debt Consolidation

The method of debt consolidation is not the only thing that matters. The specific terms also affect whether debt consolidation is a good idea.

First and foremost, you’ll want to make sure you’re getting a lower interest rate than the debt you’re consolidating. Otherwise, you’ll end up paying higher loan fees, which doesn’t make sense.

You must also take into account the payment deadline. If you lower your interest rate by taking out a home equity loan but take 30 years to pay off your debt when you would have paid it off in two years if you stuck with the status quo, then you are in a situation. worst .

The same is true if you end up with a personal loan with a much longer repayment term, or if you cannot pay off the balance transfer before the 0% rate ends. You could end up with a large balance at a higher rate than what you were paying before.

The Ascent’s Choices For The Best Debt Consolidation Loans

Want to pay off your debts faster? Check out our list of the best personal loans for debt consolidation and lower your monthly payments with a lower rate.

Pay off debt faster

By carefully considering how you consolidate your debt, as well as the terms, you can avoid unwanted results and make sure your consolidation makes sense. Take the time to carefully research your options and do the math before moving forward so you don’t have any regrets.

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