Advantages and Benefits of a Debt Consolidation Loan

Lower Interest Rate – By consolidating your debt you may be able to achieve a significantly lower interest rate.  For example, several credit card debts with an average APR of 18.9% could be replaced with a personal loan that charges a rate of 6% - 8% depending on your credit rating and whether the loan is secured. 

Lower Monthly Payments – In most cases, the combined monthly payment for several smaller loans or credit cards is considerably higher than the monthly payment for a consolidation loan.  This reduces your monthly expenditures and improves cash flow. 

One Payment for All Debts – A consolidation loan combines all your debts into one therefore allowing you to easily manage your finances by making only one monthly payment. You do not have to worry about meeting multiple deadlines, receive harassing calls from debt collectors, or stress about paying off multiple debts.

Higher Total Debt - When getting a debt consolidation loan one must understand that the lower monthly payments are due to the longer term on the loan.  Therefore, although you are paying less per month, your total repaid amount is often higher because of the longer term. Keep in mind that it also takes longer to pay off your debt. 

Requires Self-Discipline - There are people who think that a consolidation loan is the solution to all their debt problems.  These people are dead wrong because the solution lies in self-discipline.  If you get a debt consolidation loan and instead of cutting up your paid-off credit cards start running them up again, you may soon find yourself in an even deeper financial hole than you started with.  Be careful not to fall into this trap and make sure you change your spending habits once you get the consolidation loan. 

May Require A Co-Signer - Some debt consolidation loans require a co-signer which is also responsible if you default. Not meeting payment obligations on these types of consolidation loans can ruin friendships and tear apart families.  

Upfront Fees? - Many debt consolidation loans involve upfront fees. You must weigh all the costs before proceeding with consolidating all your debts into one.