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.
“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.
You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved. Paying off debt is the first step toward a healthy financial life.
A debt consolidation loan may help you take that step.
“The big advantage to a personal loan is that it forces you to pay off your debt over time,” says Nerd Wallet personal finance columnist Liz Weston.
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.