Finance

How to Know If Debt Consolidation Is Right for You

Are you trying to determine if debt consolidation is the right choice? To figure this out, you have to be willing to do the math and figure out the numbers.

Now, you can go to a debt consolidation company and certainly listen to what they have to say. Just realize that they will charge you for their services. Nobody is going to give you a loan for free, even if you deal with nonprofits.

Ultimately, whether or not you move forward has to come down to your decision-making process. After you do the math, it’s up to you to discover whether or not the fees that you’ll pay are worth it in the end. You’ll have to figure out how they’ll have an impact on your bottom line.

With that said, let’s take a look at the various fees involved with debt consolidation. Once you have a better understanding of them, you’ll know if this process is the right one for you.

According to Debtconsolidate.company, sharing information about debt consolidation companies that can assist you, “Debt consolidation entails combining unsecured debt into one payment. Instead of making your payments each month to multiple creditors, you will make one monthly payment at a lower interest rate. You can save a significant amount of money and interest.”

So, if the numbers break down in your favor, debt consolidation is definitely a good thing for many people struggling to pay off their debts.

Debt Consolidation

Image by Pexels

1. Upfront Fees

Remember when we said that debt consolidation companies charge for their services? Well, one of the ways they do this is in the form of upfront fees.

But here’s the thing…

Since a debt consolidation company is actually going to make money off the interest being paid on the loan, it is not necessary for them to charge an upfront fee.

So one way or another, this is definitely something that you have to consider. You can find a company that doesn’t charge the upfront fee or you can pay it and move on with your life. It’s really up to you.

2. How Much Is Your Interest Rate on the Consolidated Loan?

In reality, one of the biggest benefits of consolidating your credit cards and other loans into one loan is that you’ll have to pay a much lower interest rate.

But is that definitely going to happen?

In some cases, people have consolidated their loans and ended up paying a higher interest rate overall. So that’s definitely something that you have to keep in mind when doing the math.

You do not want to end up consolidating your loan, paying the loan consolidation company a higher interest rate, and ultimately spending more money over the long run. That would probably defeat the main reason why you’re consolidating in the first place.

3. How Long Is the Term of Your Consolidated Loan?

The third thing to consider is the term of your loan.

The great thing about a consolidated loan is that more often than not you’ll end up with a lower interest rate. But that can be easily negated if the overall term of your loan is twice as long, right?

If you were to make the minimum payment for the lifetime of the loan, you’d end up paying a lot more in interest because of the extended term.

In reality, this could end up costing you a lot more money over the long run. So your best bet is to continue to work hard to pay it down as fast as possible to really save money by taking full advantage of the lower interest rate.

Conclusion

Now that you better understand the fees involved with debt consolidation, take some time to do the math and determine if this is the best move for your financial well being.

About the author

Jyotsna Ramani

Jyotsna Ramani is a passionate writer and an avid globetrotter. She had a knack for writing since her early years, though that was mostly letters to her penpals and jotting her thoughts down in her "Dear Diary".
Over the years, she realized how her hobby could turn into a full time career and she started writing web content, books and pieces for local magazines. There has been no looking back ever since.

Leave a Comment