Debt Consolidation
Is It for You?
A fact sheet that explains how to consolidate your debts so that you only have to make one monthly payment. Discusses the advantages and possible problems with debt consolidation.
Table of Contents
What is Debt Consolidation? Before Consolidating After You Decide Potential Problems
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What is Debt Consolidation?
For some people with credit problems debt consolidation may be an answer. Debt consolidation is borrowing enough money from one lender to pay off all your debts. When you consolidate:
You make only one payment each month, to the new lender. You will usually pay out less money each month. You usually pay more money in finance charges to consolidate debts. You make payments longer.
Before Consolidating
Before you decide to consolidate your debts, look at your other choices:
Talk to your family members about the problem. See if you can lower expenses or raise income. Seek financial counseling. You can go to a credit counseling service. They may know a solution you have not thought of. Call your creditors to see if you can work out some change in monthly payments that will ease the pressure. The creditors may be willing to adjust payments.
After You Decide
If you do decide to consolidate your debts, shop around. There are different places you can go, such as banks, credit unions, and finance companies.
Before you choose whom you will get the loan from, find out the following information from each place:
The charge for the service. The annual percentage rate (APR). The amount of your monthly payments. How long you must make payments. What the total amount is that you will pay. What happens if you miss a payment. What happens if you are late making a payment.
Potential Problems
Making only one payment a month may make you think you are better off than you actually are. You may be tempted to buy something else on credit, and before you know it you could have an even worse problem: too many bills with too little income.