Question: Has anyone had any experience with debt consolidation loans? Are they a legitimate way to help in financial planning (provided my spendings habits aren’t such that I’ll pile up extra debt at the same time!)
Thanks for any input,
Answer: Not necessarily true, depending on the amount of interest being paid. Also if the little bit of payment being made doesn’t pay off the interest accrued each month then the card could become over limit. Also many places will penalize you for not paying at least the minimum.
To the original poster – a consolidation loan can be a very good thing (with apologies to Martha) IF you can do the following things: make sure that the interest rate is lower than the lowest rate you’re currently paying on any of your debts, make sure that you can pay it off in 3 years or less, make sure that the payment you would make will be less than the sum of your minimum payments, and cut up or cancel all of your other debt sources.
I took out a consolidation loan a few years ago to clear up my credit and it was the smartest thing I ever did. I saved $$$$ in interest, over limit, and late fees, made one monthly payment to my bank, and lived well within my means. I was actually able to pay off the consolidation loan early.
However, if you don’t have the willpower to not continue to spend after you take out the loan you can really be hurting yourself. I had a friend who took out the loan, kept his credit cards, and within a year was right back in the same position.
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