You probably noticed that many of the lenders we talked about debt consolidation loans to pay off credit cards or other debts.
When thinking about following the same path, there are a few major points to consider. First, make sure you’re actually going to save money when you consolidate your debt.
Interest Rates and Fees
The annual percentage rate (APR), which includes origination fees, should be less than what you currently pay. Also, compare the length of your repayment period. Credit cards are open-ended, but other loans have a term length.
Even if you get a better interest rate, how does the new repayment term stack up to the old one? Will you actually save money if you’re paying on the new loan for several years? The answer to that last question should be yes.
Affordable Monthly Payments
It’s also important to make sure you can afford your new monthly payments, especially if you’re switching from lower minimum payments on your credit card to a new loan.
The last thing you want to do is rack up heavy late fees and hurt your credit because the loan was too tight on your budget. Setting aside an emergency fund can help prevent this from happening.
If you’re short on cash one month because of something unexpected, you have a buffer to keep up with all of your financial obligations. Still, switching from credit card payments to a personal loan can be helpful.