Pros & Cons of Debt Consolidation

When you have debt payments in multiple locations, it can be hard to keep track of them. You may want to consider debt consolidation to have everything in one spot. Debt consolidation is the process of combining two or more debts into a single, more significant debt. It could make paying bills more convenient to have it all in one place, but you should check with your financial institution to see if it’s the best option for you. Here are a couple of pros and cons of consolidating your debt.

• Repay debt sooner – Taking out a consolidation loan might help you get on track to pay off your debt faster, especially if you have a lot of credit card debt. Credit Cards do not have a set timeline for paying them off, so a loan might pay them faster.
• Lower Interest Rates – Credit cards tend to have higher interest rates than personal loans. If you take out a loan at a lower interest rate, the amount you pay back overall will be less with a loan.
• There may be upfront costs – Be sure to check with your financial institution for origination fees. There can be other fees to look for, such as balance transfer fees, closing costs, and annual fees. American 1 Credit Union does not charge these fees.
• Higher Interest Rates – On the flip side of lower interest rates is the potential for a higher interest rate. Higher rates could happen for various reasons, such as credit score, loan amount, and loan term.
• Impact on your credit score – Some lenders may require you to close your previous credit cards. Closing the available credit can have a temporary negative impact on your credit score.

Everyone’s financial situation is different. Talk to one of our Member Service Specialists today to see if debt consolidation is right for you. To read more about debt consolidation, check out an article from Bankrate here.

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