Debt consolidation: when to use it
A tool, not a magic fix
Consolidation combines multiple debts into one loan, usually at a lower rate. Done right, you save thousands. Done wrong, you pay more fees over a longer term.
Common mistake: consolidate cards, feel relief, run them back up. Now you have the loan AND new card debt.
Use it only if you've fixed what caused the debt.
Key points
- Good consolidation lowers your rate. Replacing 22% cards with a 10% personal loan is a win. Replacing them with a 19% loan isn't.
- Watch the term. A "lower monthly payment" usually means a longer loan. Longer term can mean more total interest even at a better rate.
- Avoid debt relief companies. Massive fees, advice to stop paying creditors, often don't deliver. Go to a reputable lender directly.
- Never consolidate unsecured into secured. Rolling card debt into a home equity loan means a default costs you the house. Not worth it.
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