What is debt consolidation?
Consolidating debts involves taking out a new loan to pay off your existing loans. There are three primary benefits to debt consolidation:
- You may be able to save money if your debt consolidation loan has a lower interest rate than your current loans.
- You could lower your overall monthly payment amount.
- Debt consolidation can make managing your bills easier, as you’ll only have one bill to pay each month.
When should you consider debt consolidation?
Debt consolidation may be a good idea if you can lower your interest rate or monthly payments. Ideally, you can do both. Or, in some cases, it may make sense to agree to higher monthly payments if it leads to a lower interest rate and getting out of debt quicker.
For example, you may have a $500 credit card balance, $200 payday loan and $1,300 title loan. Using a $2,000 installment loan, you may be able to pay off all these accounts and then solely focus on paying off that one loan. Plus, by moving your debt from high-interest accounts a lower-rate loan, you can save money on interest and use the extra cash for other expenses or to pay off the loan early.
What about credit card consolidation?
Consolidating credit card debt with an installment loan may have slightly different pros and cons than consolidating other types of debt. You could still save money by using credit card consolidation loans. Additionally, you’ll be moving balances from revolving credit accounts to an installment credit account.
Because revolving debt can be more damaging to credit scores than installment loan debt, the transfer could increase your credit scores. Additionally, since you’ll have a fixed monthly payment and pre-set loan term, it may be easier to stick to a debt payoff plan.
However, those who tend to overspend on credit cards need to be careful, or they could wind up with their debt consolidation loan and more credit card debt.
What to look for in a debt consolidation loan
As with shopping for any loan, you’ll want to consider the debt consolidation loan rates and terms before taking out the loan.
RISE’s installment loans are an expensive form of credit and may not be the best debt consolidation loan for every borrower. However, you may qualify for a lower rate than you’re paying on an auto title loan or payday loans – and a low monthly payment that lets you break the payday loan cycle. Plus, RISE reports your payments to at least two of the national consumer credit bureaus, which could help you build good credit history.