Get Out of Debt With a Consolidation Loan

In this section:

How does debt consolidation work?

What is a DMP (Debt Management Program?)

Debt management or consolidation loan?

Get control over your credit cards

What Is the Credit Card Dispute Process?

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Research consolidation loans for you:

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Should you plan to be debt free
by getting a debt consolidation loan?

How Much Can Consolidating It Save Me?

Debt consolidation loans are meant to both simplify your life and save you money. Dealing with one monthly payment, usually automatically deducted from your bank account, saves you time and hassle. It also protects you from missing a payment by mistake. That part is clear. But what about the money?

Does Debt Consolidation Save You Money?

The answer is usually yes, if you are in a situation of financial stress. If not, it may cost you more money than simply dealing with your credit cards. The magic ingredient here is time. Dealing with credit cards and a debt consolidation loan over the same term length will make consolidation the better option. But not everybody is in that position, and you may be able to save money by paying off the credit cards faster.

Credit Card Debt Versus Debt Consolidation Loans

Credit cards tend to have a much higher annual interest rate. They can be in the 15% area and as high as 25%. Consolidation loans can come in at 5 or 6%. Over a similar time period, the consolidation loans will save you money.

If, however, you would be able to pay off your credit cards in one or two years, you won't save anything significant on a consolidation loan. Remember, consolidation loans are usually long-term loans, whereas you can pay your credit card at any time. If you can pay them quickly, that is always the best recourse.

So How Much Can I Save?

If you can't pay your credit cards significantly faster than a consolidation loan, you can save thousands of dollars. How much? On a $15,000 debt, going from 15% to 5% at the same five-year term, you will save around $4500. Nothing to sneeze at!

How Does Debt Consolidation Affect My Credit Score?

Actually, this is a strong reason to consider a debt consolidation loan! If you miss a credit card payment, that will hurt your credit score. You may find that you are refused loans because you missed one payment or bounced one check.

If, however, you are enrolled in a debt consolidation loan, with automatic bank payment, your credit score will improve. The credit reporting agencies look at the number of debts, and when they see that credit card bills have been completely paid, they give you credit.

So Should I Consider Debt Consolidation?

Yes, if you are unable to pay off your credit cards quickly. No if you can pay off your credit cards within two years. In that case, it is probably better to pay off some of the credit cards completely, close them and keep only one card active. You will save money, and get rid of the confusion and potential for a big financial mistake, i.e., missing a payment.