The Ins and Outs of Debt Consolidation

Author: 1st Choice Savings & Credit Union | Published: September 3, 2024

Managing your debt can be stressful and daunting for many, and the fear of not being able to pay them off in an appropriate time can add to that stress. Consolidating your debts is a way you can make your debt a little more manageable and seem less daunting.

Debt consolidation is the process of pulling some or all your debts into one monthly loan payment instead of multiple. A consolidation loan may be helpful to you if:

• It has a lower interest rate than the debt(s) you are consolidating

• It has a lower monthly payment

• You can avoid taking on more debt

• It extends the term of your loan

There are a few different borrowing options when it comes to consolidating your debt. You can apply for a debt consolidation loan or open a line of credit. Both options will be effective in the repayment of your debt.

Depending on your situation, your financial institution may be able to provide you with a consolidation loan. If you have an acceptable credit score and a sustainable income to make the monthly payment, you may be eligible. Financial institutions may offer you a different interest rate depending on the type of borrowing option you choose. You may shop around to find the best loan for your budget, though do keep in mind that applying for loans with different lenders within a short time frame may lower your credit score.

Each loan has different repayment terms you need to follow. To put it simply, after you are approved for a debt consolidation loan, you will follow a three-step process.

1. Take out a loan

2. Use the loan to pay off debts in one monthly payment

3. Pay off the loan

Just like all things, there are many pros and cons to a debt consolidation loan.

Managing your debt can feel never ending, but considering a debt consolidation loan is a way to get your finances back on track. To determine the best debt management strategy for you, book an appointment with one of our advisors.