When Is it Smart to Get a Consolidation Loan?

Consolidation loans represent a kind of "bundled loan" in which debtors combine several outstanding loan debts into one convenient monthly payment. Consolidation loans can help debtors stay current on their payments, but not always at a favorable interest rate.

Likely Prospects

Consolidation loans can help debtors who tend to fall behind on payments because they have difficulty keeping up with the various payment due dates. Consolidation loans may also prove an attractive option for people who have debts with uncomfortably high interest rates.

Benefits

A consolidation loan allows debtors to make a single monthly payment covering the amounts owed to multiple creditors, according to Bankrate.com. This convenient, easy-to-remember solution helps debtors avoid late fees and possible credit rating damage. A lower interest rate can make the debt easier to repay in a timely manner.

Considerations

The convenience of a consolidation loan may come with hidden extra costs. Bankrate.com warns that the interest rate on an unsecured consolidation loan may rise over time until the debtor actually faces a steeper total debt than before. Debtors should compare their current accounts against consolidation loan offers with care before taking out new loans.

References

• Bankrate.com: Debt Consolidation: Cure or Continued Credit Problems?