If you have a lot of small loans and credit cards and feel overwhelmed by your debt, a consolidation loan can help you get back on top of things and get on the path to paying off your debt. But if you don't know what you're getting into, consolidating your debts can make things worse and make it harder for you to get out of debt.
If you consolidate your debts the right way, you could end up paying a much lower monthly payment, but this could be spread out over a longer period of time, so you should keep this in mind when figuring out how much you will pay back in total.
One big problem with consolidation loans, which about 80% of people who get a loan to pay off their debts end up falling into, is that people use the money for things other than debt consolidation and end up with even more debt. The other problem with them is that once you've paid off most of your debts, it's easy to quickly go back into debt by getting another loan or running up your credit card bill again.
The first thing you should think about when choosing a consolidation loan is how much interest you will have to pay. This varies from lender to lender, of course, and the best way to get quotes from different lenders before deciding which deal is best for you is to shop online.
As with most loans, there are different kinds of consolidation loans. Two of the most common are secured and unsecured. The difference between a secured loan and an unsecured loan is that with a secured loan, you have to put up something as collateral, which is usually your home. With an unsecured loan, you can borrow money without putting your home at risk.
The best loans will let you make different payments without charging you extra. For example, if you take out a loan for 10 years and find after, say, 4 years that you can pay more off the loan and pay it off early, some lenders will charge you extra for doing so. If you can, look for a loan that lets you pay more without making you pay a penalty if you pay it off early.
