Multiple high interest credit cards with large balances can be difficult to manage. You may have hefty monthly minimum payments which you can’t afford. This can lead to missed payments, late fees, and eventually, a lower credit score. If you owe a lot of money from different creditors, you may want to consider debt consolidation.
Debt consolidation is the process of taking out one loan that covers all the smaller loans. You pay off all your smaller loans at once, and then pay down the larger loan over time.
Easier money management – By consolidating your debt, you’ll reduce the amount of bills you have to pay each month. This makes budgeting easier. You’ll have just one bill to track, making it less likely that you will forget to pay your bill and have to pay a late fee. A good payment history is key to a good credit score.
Possible lower interest rates – Debt consolidation loans usually have a lower interest rate than the individual loans. Your monthly payments may be smaller, but may be spread out over a longer period of time.
For smaller debt consolidation loans, you can use a company like Omni Financial that offers loans up to $10,000. Banks and credit unions also offer debt consolidation loans.
If you own a home, you can take out a second mortgage against the equity in your home. Keep in mind a second mortgage is a “secured loan” meaning that it is using your home as collateral. Also, applying for a second mortgage will require you to have a certain income and a good credit history to qualify.
While a debt consolidation loan gives you an opportunity to get a handle over your bills and possibly save a lot of money in the long run, it is important that you pay your bill on time and avoid accruing additional debt.