Many Americans are stuck in a credit trap that is hard to get out of. People who have more than one credit card are more likely to spend more than they can afford to pay back. Even if you have more than one job, it's easy for your monthly bills to be more than your monthly income. Without a way out, you will fall deeper and deeper into the trap. Putting all of your bills into one monthly payment is a great way to break the cycle. You might think that if you only have one monthly payment to make, you'll pay less each month but have to pay more in interest, but you can have both. It is not only possible, but also likely that the total interest rate on a debt consolidation loan will be lower than the interest rate on the bills you were paying before. This means that you can pay your monthly bills and also lose less money to interest.
This is what happens when you combine your bills. Your new lender pays off all of your debts, so you no longer have to pay interest on them and won't get any more annoying phone calls. Then, each month, you pay your new lender instead of all of your other lenders. Since the new lender is getting a fixed monthly payment, they don't have to charge you as much interest. Yes, this helps you because it lowers the amount you have to pay each month and the amount of interest you lose, but it also gives them a higher monthly payment than most lenders see. They collect from you not just what you owe one lender, but what you owe all of them together. So a loan to combine debts works both ways. It helps your new lender, and because it helps your new lender, it also helps you.
If you can't pay off your debts each month even though you're working as many hours as you can, a debt consolidation loan is probably your best option. But there are many different types of loans that can help you pay off your debt. If you own a home, it's usually best to use the value of your home to pay off bills. Most of the time, a home equity loan has the lowest interest rates of all your options. This is because the lender has security in your home. You can also use a home equity line of credit to consolidate your bills and keep a line of credit open to cover any expected or unexpected expenses. If you don't own a home or don't have enough equity in your home to get a home equity loan, you can use a personal loan to pay off your bills. Your interest rate is based on your income and your credit score. Even if you have bad credit, it's usually not too hard to get a personal loan as long as you have enough income to show that you can consistently pay the monthly payment.
You can also use a credit card to pay off multiple credit card debts at once. People who want to consolidate their bills are often drawn to credit cards because they have low monthly payments. However, credit cards can make your problems worse. With that low monthly payment, it's easy to just pay the minimum each month, just because you can. The problem with that is that you won't be able to pay off your debts very quickly, and you'll lose a lot of money to interest. You can also spend the money you send to the credit card company again. It takes a lot of willpower not to do this. So using a credit card to pay off multiple bills can hurt you more than help you, especially if you got into debt because you didn't have enough self-control.
No matter what kind of loan you decide is best for you, it is very important to look around for the best rates and lowest monthly payments. Some lenders will offer a lower monthly payment but a higher interest rate. You should decide which is more important to you. You need to know that a lower monthly payment may look good right now, but a higher interest rate means you will pay more in the long run. With some legwork and time on the phone, you can find the best lender in your area and get the best monthly payment and interest rate for your needs.
If you decide to combine your bills, don't think you're out of trouble just yet. Focus and self-control are needed to take care of your debt. If you don't pay your debt consolidation loan, it will be very hard to get out of debt. A debt consolidation loan is a great way to get out of debt, but it is not a free pass, and you should think of it as your last reliable chance.
