Debt consolidation loans are a common method for paying off debts, but they aren’t for everyone. Consider the long-term interest costs and other debt management solutions.
Every day, people turn to consolidation loans to get out from under growing or overwhelming debt. Approximately 77 percent of all households have debt, with the average consumer carrying a balance of over $90,000, including credit cards, car loans, student loans and other debts.
Debt consolidation is a common solution that can simplify re-payments and lower costs. But before signing up, let’s look at the pros and cons and consider a few alternatives.
Debt consolidation combines multiple debts into a single loan, rolling multiple debt payments into one monthly loan payment at a lower interest rate.
Many forms of debt can be consolidated -- credit card balances, auto loans, student loans, a home equity line of credit, and others. You don’t have to include all your debts. You can choose which debts to consolidate, and both secured and unsecured debts are typically eligible.
Debt consolidation loans typically provide a lump sum that you use to pay off other debts,
quickly freeing up your available credit, simplifying monthly bills and often lowering interest charges.
There are pros and cons associated with debt consolidation loans, and they aren’t always the right choice for everyone. The benefits include the following:
In contrast, drawbacks to debt consolidation loans include:
Weigh these pros and cons carefully before considering a debt consolidation loan. Note that if you do decide to apply, you may be denied a loan and will need to find another way to manage your debt.
As with any loan, there are no guarantees. Lenders don’t like lending money if they aren’t reasonably sure you’ll pay it back. You may be denied a debt consolidation loan if your credit score is not high enough, your income is too low, your existing debts aren’t in good standing, or you simply have too much debt relative to your income.
Other ways you can pay down your debt include the following:
Benefits of using Bright as your personal finance app.
Bright doesn’t offer debt consolidation loans, but we can help you get debt-free faster. Powered by MoneyScience™, Bright studies your finances and analyzes your debt, looking at APRs, balances and interest charges, then makes smart card payments for you, automatically.
Week by week, Bright moves funds from your checking based on your goals and what you can afford, adjusting automatically as your finances shift.
Bright also offers two other solutions, Bright Credit Builder and Bright Balance Transfers. They’re smart alternatives, with competitive rates and built-in automation.
Bright Credit Builder is an easy and safe way to boost your credit score - with instant approval, no extra fees and no credit check required. Once you’re signed up, we’ll set up an interest-free, secured line of credit and use it to make automatic payments on your cards, building a positive payment history and lowering your credit utilization. Bright Credit Builder focuses on utilization and payment history because as they improve, your credit score goes up!
Bright Balance Transfer offers a low-interest line of credit designed to pay off card debt fast while saving you from high interest charges. Once approved, Bright uses the funds from your Bright Balance Transfer to pay off your high-interest cards, moving those debts to our balance transfer program with its lower APR. Over the months ahead, Bright automates your new repayments, too, so you pay less in interest and it’s hassle-free. Bright Balance Transfers offers credit lines of up to $10,000 at APRs starting from 9.95%, depending on your eligibility.
If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your checking account and your cards, set a few goals and let Bright get to work. Once you sign up, you can apply for Bright Credit Builder or Bright Balance Transfer or use MoneyScience™ to pay off your cards fast.
With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.