August 1, 2019

Is it Smart to Get a Consolidation Loan for Credit Card Debt?

Most people have experienced financial stress in their lives. Maxed out credit cards, rent hikes, and unexpected bills have a way of bringing us all to our breaking points, no matter how close we try to stick to our budget. If you are making the minimum monthly payments just to stay afloat, you know how close you feel to complete financial ruin.

One of the solutions that gets promoted to those with a growing mountain of debt is a debt consolidation loan. When consumers opt for one of these loans, what is supposed to happen is all your bills get rolled into one payment a month, usually promised with a reduced interest rate across the board. While it might be a good solution for some, it’s not the smartest route for everyone. If you’ve been considering a debt consolidation loan, there are some things you need to consider.

Why Do People Consider Debt Consolidation?

Those that are in debt want to tell themselves that it’s too many different payments and high interest rates that are killing their monthly finances, but that’s not usually the case. All too often it’s saving and spending habits that are to blame, and a consolidation loan does little to remedy that.

People want to believe in debt consolidation because combining all your current debt into one payment with a low interest rate sounds fantastic. But that’s not always the case. Many predatory companies come in promising the moon, but fall short for a couple reasons.


The Bait and Switch of Debt Consolidation

For many it’s the draw of a lower interest rate that entices them, but unfortunately many of those same people don’t read the fine print. Those lowered interest rates may only hold for an introductory period, and then they can rise up again. The ugly truth is the consolidation loan companies may paint themselves as your bad-credit savior, but many are just as predatory as the high-interest credit card companies.

They’re also not being up front by not sharing that the lowered interest rate is completely at the discretion of the creditor. If you don’t have a good credit history, or a history of paying on time all the time, you may find yourself not getting the great deal you were initially promised. Another secret of debt consolidation is that even though monthly payments may be reduced, they’ve been swapped for an extended loan term. You’ll still be paying the same amount, just for a longer period of time.

debt snowball ebook

Truly Getting Debt-Free

The bottom line is that while a debt consolidation loan seems like a good solution to a mounting problem, in truth it’s just more money out of your pocket, which is the complete opposite of what you are trying to achieve.

Getting rid of debt involves the same old strategies you’ve been hearing about your whole life but haven’t taken to heart. Make a budget, change your behaviors, and start paying off your lingering debt. We’re here to help. We can offer comprehensive insight into your financial goals, both short and long term. If you’re overwhelmed and just feel as though you don’t know where to begin, contact us today.

photo of Jeff Mohlman

By Jeff Mohlman

Jeffrey has developed a comprehensive network of financial planning and estate planning experts who work for their client’s short-term and long-term goals. Today, the approach he incorporates for his clients follows three basic tenets: 1) being debt-free, 2) maximizing after-tax retirement income, and 3) protecting their estate from unforeseen risks.