Paying off debt is the first step toward a healthy financial life. A debt consolidation loan may help you take that step.
With a debt consolidation loan, a lender issues you a single personal loan that you use to pay off your other debts, such as medical bills or balances on high-interest credit cards. You’ll pay fixed, monthly installments to the lender for a set time period, typically two to five years. The interest rate you receive depends on your individual credit profile, and it usually does not change for the life of the loan.
If you’re having a hard time keeping up with multiple payments, it’s a strategy worth considering.
Taking out a personal loan is not the only way to simplify your finances, however, and it may be more expensive than other options. If you decide to take out a debt consolidation loan, look closely at the fees a lender will charge, what kind of support it offers (such as financial education or payment flexibility) and whether you can use a co-signer to get a lower interest rate.
We’ve identified lenders that make debt consolidation easier below.
A loan vs. a credit card to consolidate debt
If your credit is good, you can apply for a 0% interest credit card, which could save you quite a bit of money if you pay off your debt within the promotional period. But a personal loan offers some advantages of its own.
“The big advantage to a personal loan is that it forces you to pay off your debt over time, ” says NerdWallet personal finance columnist Liz Weston. “If you’re disciplined enough to pay off that low-rate card before the teaser rate expires, that’s one thing. If you’re not sure you can, though, the personal loan may be the better bet.”
In addition, a personal loan may improve your credit score by moving credit-card debt over to the installment loan column. The way credit scores are figured, borrowers who use all or most of the available credit on their cards get hit with a significant penalty.
Why not to choose a personal loan
A personal loan to consolidate debt makes sense only if you receive a lower interest rate than you have on your existing debt or if it helps you pay off your debt faster. Otherwise, taking on a new loan to wipe out an old one is postponing the inevitable.
Personal loans also frequently carry fees of 1% to 6%, called origination fees. You may pay less by simply tackling your existing debts in a systematic way, rather than consolidating.
Vozrozhdenie Bank (MICEX-RTS: VZRZ) is a Russian bank founded in 1991 and headquartered in Moscow. The bank provides personal banking and business services to clients in Russia through of a network that includes 161 bank branches and more than 780 ATM's.
The bank provides 1,600,000 clients with a range of services, from savings accounts...
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