Can debt consolidation work for you?

Debt consolidation is one way to make paying off your debt more manageable. Instead of paying several minimum monthly payments on a number of bills, this repayment strategy involves getting a new loan to combine and cover your other loans or debts. You can then repay all of your debts with a single monthly payment.

Simplify your payments

A debt consolidation loan may simplify your monthly payments into a single monthly payment and may possibly result in lower monthly payment.

Debt consolidation often works best for those with credit card debt because that debt typically has a higher interest rate relative to other types of debt. If you own a home or other valued property that you can use as collateral, lenders may be more likely to offer you lower payments and interest rates. But remember: if you use your property as collateral, you risk losing it if you fail to repay the loan.

A debt consolidation loan with a longer repayment period may lower your monthly payment, but increase the total amount you repay over the life of the loan. Making more than the minimum payment can help pay off the loan faster.

Read the fine print

Some debt consolidation options offer low introductory rates to encourage customers to transfer high-rate balances, but these rates typically increase after the introductory period ends. Debt consolidation loans may also require that you pay your debt off over a specified amount of time. Be sure to understand the terms of the loan you are considering before you take the next steps.

It's important to understand that a debt consolidation loan simply transfers the debt, so you still have debt. Debt consolidation may not be for everyone, but if you examine your options closely, it may help you effectively manage and reduce your debt over time.