Should You Consolidate?
Consolidation is when you take multiple accounts and combine them all into one account. Some people use balance transfers to consolidate debt while other people use loans specifically designed for this purpose.
Why do people consolidate debt? There are plenty of reasons why folks consider it an appealing option. It’s possible to save quite a bit of money with consolidation if the debt is combined into an account with a lower interest rate or a shorter amortization. The real appeal of consolidation, however, is usually that the borrower can pay one large payment every month instead of several payments throughout the course of the month. This allows the borrower to concentrate on the debt as a whole instead of attacking the debt one account at a time.
So should you consolidate your debt? The answer depends on several factors:
Amount of debt: If you have several credit accounts - yet they are all fairly small and can probably be paid off quickly with a little effort - then consolidating might prove to be a waste of your time. If, on the other hand, you have several accounts including large balances then consolidation may be able to get you on track to paying it all off quicker.
Status of debt: You may have a difficult time getting approved for a consolidation loan if some of your accounts are delinquent. If everything is up to date and you merely want to combine all the accounts then consolidation may be a good idea for you.
How you handle debt: Are you willing to close the accounts that you consolidate, or is there a chance that you might wind up charging them all back up? Don’t even think about consolidating all your debt if you’re pretty sure you’ll just turn right around and use the accounts you just paid off with a new loan because you’ll wind up with even more debt.
If you think consolidation might be right for your situation, check with your preferred lender to run some calculations to find out how much money you might be able to save by combining your accounts. Keep in mind that just because your accounts are all combined into one account it does not guarantee that you’ll save money; make sure it’s a smart financial move.
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