Debt Consolidation Loan: Beneficial or Dangerous? Determining if Debt Consolidation is Right for You

Debt consolidation loans do not always add up to savings. It is important to know what you are getting into with a debt consolidation loan to decide if this debt management option is right for you. It can be beneficial to consolidate your debt into one loan but there are also dangers involved.

An advantage of a debt consolidation loan is convenience. Instead of paying several different lenders each month, who are charging different interest rates, you have one loan to cover all your debt. It makes sense to consolidate if you lock into a low interest rate and your monthly payment is lower than if you did not consolidate.

However, if your credit is poor, it is more difficult to qualify for the advertised low interest rate. Those low interest rates generally go to people with great credit. Lenders charge an interest rate of 14% to 15% to customers with good credit. A person with bad credit could be charged as much as 18% to 21%. Also, if you don't have anything to secure, like a house for example, the lender will increase the interest rate because you are a more risky lender.

Before you apply for a debt consolidation loan, compare various consolidation loans. Find out the length of the loan, if there are any fees, the duration of the stated interest rate and the cost of your monthly payments.

Watch out for costly add-ons, hidden fees and damage to your credit rating.

Credit unions often offer better debt consolidation loans, as they tend to be more lenient than banks.

Debt consolidation is a viable option when paying off credit cards. Often a debt consolidation loan has a lower interest rate than credit cards. This means your debt can be paid off faster with less money spent on interest each month. However, if you don't have control over your spending habits, this can lead to trouble. You have the potential of digging a deeper hole for yourself.

It is helpful to weigh all the benefits and dangers of a debt consolidate loan, keeping your main goal in mind: to pay off your debt.