A consolidation loan may be able to help you if you are still able to make payments and your credit rating is in relatively good standing. A consolidation loan is used to pay off all or a portion of your existing debts. Then you will only need to make one monthly payment on the consolidation loan, which is often less than what you were paying before.
With consolidation loans you need to be careful about what you do with the money you just freed up each month. Since the payment on a consolidation loan is often lower than your previous combined debt payments, you will likely have more money available to you.
Financial institutions and banks know that, statistically, if they are able to free up money for someone, usually that person will end up aquiring new debts with this freed income.
If you think about it, what would most people do with, say, $400 extra a month? Often, they will use it to get another loan for a new car, boat, or something else they would love to have. And who usually provides that new loan? Yup, the same bank that did the consolidation loan!
Unless you need that additional money to pay for basic neccesities, it would be wise to do one of two things with it:
- Start a savings plan the money will go into. That savings can be used as an emergency fund so you have money available when you need it. This emergency fund will prevent you from having to use debt to deal with financial emergencies.
- Take that money and use it to make extra payments on your new consolidation loan. This will help you get out of debt even faster,and it isn’t costing you any additional money out of your pocket.
