There’s something really empowering about being able to buy big-ticket items using credit. Whether you’re using a student loan to pay for grad school or a credit card to pay for the latest new smartphone, using credit absolutely has its perks.
But paying off that debt can be another story altogether. If you feel like you’re carrying around a crushing amount of debt, you’re not alone—Experian’s 2019 consumer debt study revealed that collective consumer debt in the U.S. totaled $14.1 trillion, and the average American has piled up a jaw-dropping $90,460 of debt. Um, yikes.
It could feasibly take a person their whole lives to pay off that kind of debt, with plenty of anxiety and stress along the way. But luckily, there’s a better way to slash debt and get back to a more financially stable lifestyle, thanks to debt consolidation.
What Is Debt Consolidation?
Debt consolidation is when a person combines all of their various debts into one simplified, monthly payment by taking out a new loan. This type of loan is usually used to pay off multiple credit cards, which makes it easier to keep track of the debt and ideally pay less interest in the long run. But it’s important to weigh the pros and cons of debt consolidation before taking the plunge.
Pros of Debt Consolidation
Already sold on debt consolidation? It’s not surprising—for many people, it is a no-brainer solution that can save them big money and make payments far less overwhelming. Here are some of the many benefits of debt consolidation.
1. Pay Off Debt Faster
Since credit cards don’t have a due date or set timetable for paying them off in their entirety, it can be difficult to take care of the balance in a timely manner. However, consolidation loans come with a fixed payment schedule and a set end date of the loan, making it easier to repay debt sooner.
2. Simplify Your Finances
Paying off several different credit cards, car payments, and other loans can be a lot to juggle. It’s no wonder payments get skipped and interest piles up over time. But debt consolidation means there’s only one payment to make, simplifying the whole process so you are more likely to make payments every month.
3. Lower Your Interest Rates
Credit card interest rates can be astoundingly high, and it’s not hard for a debt consolidation loan to beat those rates. While the average credit card interest rate was 15.09% in the first quarter of 2020, most debt consolidation loans come with an interest rate of around 10%. Score!
4. Get a Fixed Payment Schedule
Tired of wondering exactly how much you owe and when the debt will ever end? Debt consolidation takes care of all that, giving you a tidy, fixed payment schedule and a clear end date.
5. Improve Your Credit Score
A debt consolidation loan sets you up for success—so you have a better chance of making your monthly payments, tackling debt sooner, and even getting a boost in your credit score. That credit score is more than just a nice number. It can help you get more favorable terms on your mortgage, rental agreement, or next loan.
Cons of Debt Consolidation
Yep, debt consolidation is a very attractive solution for the average American. Yet there are a couple of cons to be aware of, too. Here are some of the drawbacks of debt consolidation.
1. You’ll Still Need To Pay Off Debt
This may be an obvious point to some, but we’ve got to say it: Debt consolidation isn’t a cure-all. You’re not waving a magic wand and making the debt go away completely, and you’ll still have to pay off your debts. But you will probably walk away paying less debt overall.
2. You May Pay Upfront Fees
Like most loans, debt consolidation may involve some upfront fees for the loan origination, balance transfer, or closing costs. These fees probably won’t outweigh the overall savings, but it’s important to set that money aside if you plan on consolidating your debt.
3. Potentially Higher Interest Rates
Your debt consolidation loan will probably come at a lower interest rate than your other various loans, but there is a slim chance you end up paying a higher interest rate, depending on your credit score, the loan term, or your total loan amount.
Get a Free Debt Assessment
Tired of worrying about how to overcome your neverending money woes? All in all, debt consolidation is a great option for most people, allowing you to slash debt and pay less overall. Contact CreditAnswers today for a free debt assessment and learn how you could pay off debt in as little as 24-36 months.