There is a reason there are so many tools available to help people manage their finances. Between credit card payments, rent or mortgage payments, auto loans, medical bills, and other monthly bills, just paying your bills each month can be a time-consuming task. Even though you can set up most bills to be paid automatically today, mistakes can still happen that can be quite costly to fix.
If you miss a payment, it can not only result in a hefty late fee, but it can even damage your credit. Suppose a creditor makes a mistake and overcharges you one month, which results in overdrawing your bank account. In that case, it can result in a cascade of overdraft fees as other bills get paid on an already overdrawn account. Ultimately, the fewer bills you have to pay each month, the less chance there is of costly mistakes happening. For this reason, a number of people are turning to debt consolidation loans.
What is a Debt Consolidation Loan?
A debt consolidation loan is what it sounds like: a single loan that can help borrowers consolidate a number of different types of debt or loans into a single loan.
Benefits of Debt Consolidation
There are a number of different benefits to debt consolidation, but perhaps the biggest one is that it also consolidates a number of different payments each month into one single payment. In addition, it can also help reduce the interest rate on high-interest credit card debt or other types of loans, including student loans or medical debt. In some cases, it can also reduce your monthly payment. The fewer bills you have to pay each month, the less chance there is to miss a payment and get hit with a late fee or to overdraw your bank account, resulting in a string of overdraft fees.
Drawbacks of Debt Consolidation
Although consolidating your debt can help reduce the monthly amount you need to pay, making a smaller payment each month can also extend the amount of time it takes to pay off your debt. This means it may take longer to pay off your debt. The longer it takes to pay off your debt, the more interest that accumulates. This means that although both the interest rate and your monthly payment may be lower, you may still end up paying more overall to pay off your debt.