Personal Finance Advice

If you have several revolving accounts and installment loans that you pay on each month then you may have had the thought cross your mind that one big monthly payment would be much better than several smaller payments.  When you have many different accounts it can sometimes be difficult to keep them all organized, let alone figure out a way to start paying them all down aggressively.

Consolidating your debt can be a great option in many instances:

1.  You have a bunch of different accounts that you make payments on each month.  You’ll notice a big difference with consolidation if you go from several accounts down to one.  It will be easier to streamline your finances in order to get everything paid off faster than if you had left your debt scattered throughout several different accounts.

2.  The majority of your accounts are revolving accounts (like credit cards or lines of credit) with high interest rates.  Take five credit cards with double digit interest rates and consolidate them all into one installment loan with a much lower interest rate and you will notice a huge savings in interest payments.  It may also be easier to pay down your balance more quickly if all the debt is in one loan instead of several accounts.

3.  You qualify for a lower interest rate loan with attractive terms.  Your consolidation should result in a much lower interest rate, otherwise there isn’t much point to going through with it.  You certainly don’t want to consolidate your debt into a higher interest loan.  If your credit is damaged and you have a really low credit score then this may not be the time to consolidate because you won’t get a low interest rate.  Instead, you should concentrate on paying the debt down the old fashioned way: one account at a time.

4.  You’re willing to close the accounts paid off with the consolidation.  If you consolidate all your debt, but then you don’t close the accounts you consolidate, then you’re asking for trouble.  Before you know it you’ll have the credit cards charged right back up and you’ll additionally have the consolidation loan to pay.  Any consolidation should include the closing of accounts paid off.

You have different options when considering consolidation.  The most common choices among applicants are unsecured personal consolidation loans and home equity consolidation loans.  Banks and credit unions usually offer both loan products, but equity loans are only available to homeowners with available equity in the home.

Another choice is to consolidate several high-interest credit cards into one credit card with a lower interest rate.  If this is your plan, be sure to fully understand the terms of the credit card.  You might get balance transfer fees for a consolidation and the introductory interest rate on the new credit card might turn into a rate that is higher than what you’re currently paying on the accounts you want to consolidate.  In other words, know what you are getting yourself into before you make this important financial move.