Car loans, credit card bills, medical bills – there are so many financial demands, and the weight of them all can seem overwhelming! How do you find relief? One option is a consolidation loan.
What is a consolidation loan?
It’s a type of personal loan that allows you to combine two or more of your debts into a single, larger debt.
What are the benefits?
- Simplify your bill payments. There’s peace of mind knowing only one bill will be due each month.
- Lower your interest rate. The goal with consolidation is to trade the high interest rate you’re currently paying for a lower rate with the new loan. According to bankrate.com, rates vary depending on your credit score, the loan amount and term length, but a consolidation loan is likely to get you a lower rate than you pay on your credit card.
- Create a clear path to payoff. You’ll have a fixed interest rate for a set amount of time with a certain amount due each month, which allows you to easily see your progress.
- Improve your credit score. Although opening a consolidation loan may lower your score initially, due to the credit inquiry, your score may gradually improve if the setup of the new loan helps you make on-time payments.
What are the drawbacks?
- New debt. While a consolidation loan can help you pay off your current debts, it’s important that you consider lifestyle changes so that you don’t take on new debt. Avoid overspending and be sure to set aside money for emergencies. Create and stick to a budget, and take advantage of any financial education resources offered by your financial institution.
- These could include fees for loan origination, closing, balance transfer, early repayment and annual. Before you take out a consolidation loan, be sure to ask about fees and make sure the cost is worth the benefit to you in the long run.
What’s another option?
An alternative to a consolidation loan is a balance transfer to a low-rate credit card. This option works well if you think you can pay off your transferred balances during the introductory promotional period. Some credit cards offer a 0% Annual Percentage Rate (APR) on balance transfers for the first six or 12 months.
How can HFCU help?
We offer a low-rate debt consolidation loan. Take the first step toward digging yourself out of debt by applying today at https://heritagefcu.com/2022-debt-consolidation.