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Understanding Debt Consolidation & Your Options

What is Debt Consolidation?

In its simplest form, debt consolidation is a strategy to manage high and/or unmanageable debt by refinancing multiple debts into one single loan payment. Typically these debts include credit cards, medical bills, or unsecured personal loans. The advantages of debt consolidation is usually the the simplicity of rolling all outstanding unsecured debt into one easy payment, and also potentially lower interest rates. However, depending on the length of the term for a new loan, you could end up paying more in total interest. 

Debt consolidation is one way to manage debt. Whether it’s the right choice for you depends on your own personal financial circumstance and the type of debt consolidation you’re considering. 

If you have a high amount of unsecured debt spread across many accounts, whether that be credit cards, medical bills, or other unsecured loans, debt consolidation could potentially be a good choice for you to combine all of your debts into one easy payment. Depending on the interest rates on your various debts, it could also provide lower payments in the form of interest. 

Financial Rescue’s Debt Consolidation Plan

Debt consolidation is a strategy to manage high and/or unmanageable debt by refinancing multiple debts into one single loan payment. Typically these debts include credit cards, medical bills, or unsecured personal loans. The advantages of debt consolidation can be the the simplicity of rolling all outstanding unsecured debt into one easy payment, and also potentially lower interest rates.  

One way to consolidate debt is by using a personal debt consolidation loan. These are popular because these loans can be used for practically any purpose, i.e., paying for a major expense like a wedding or simply to incorporate all of your unsecured debt into one loan for potentially better terms. The advantage to handling your debt in this manner is simplifying payments and potentially lower rates. Most debt consolidation loans have terms of anywhere from 24-72 months. Beware however that even if you get a lower interest rate, you could pay more in interest if you choose too long of a loan term. 

Depending on your credit score and debt-to-income ratio (DTI), the rates for a debt consolidation loan will range anywhere from 10-32% and will typically be a fixed rate.

A debt consolidation loan could be worth exploring if you can get a lower rate than you’re currently paying on your credit card debt and you can afford to make your new monthly payments. Unfortunately, some people who are struggling with heavy credit card debt can’t get a good rate on a debt consolidation loan because their credit score is too low and their debt to income ratio (DTI) is too high.

Debt Consolidation Considerations

Give thought to the following when contemplating a debt consolidation loan:

  • Will you be just consolidating current unsecured debt? If so, how much?
  • Will you be consolidating debt as well as obtaining a loan for another purpose?
  • Debt consolidation loans typically can extend the amount of time to pay off debt, but if the amount is too high, you could end up paying more every month, and pay more in total interest charges.

Debt consolidation can be a good choice if:

  • You have good credit and can get a good rate
  • You can afford the monthly payments 

If you qualify for and move forward with a debt consolidation loan, understand that it is still a loan that needs to be repaid.

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