Debt Consolidation: Smart Move or Financial Trap? 4 Questions To Ask Before Diving In

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You didn’t mean for your debt to spiral out of control. It may have started with one credit card, then an emergency expense you had to charge. Maybe there was some unnecessary spending, and one card turned into another. As interest accrued, paying off your balances became even harder — and now, well, you’re not in a great place.

Trying to figure out how to get yourself to better financial terrain means you’ve likely heard a lot about debt consolidation. Some of it sounds hopeful. Some of it sounds like you should run from it with the speed of the Kool-Aid man smashing through doors. 

The truth is that the question of whether debt consolidation is the right move for you depends on your personal circumstances. You can help yourself get started by asking a few key questions up front. 

How Does Debt Consolidation Work, Exactly? 

Debt consolidation is exactly what it sounds like: It’s the process of combining multiple debts into one. Generally, you’ll take out a personal loan or a debt consolidation loan and use those funds to pay off your existing debts. After that, you’ll be on the hook for one payment — to the lender you borrowed from.

Is it Easy to Get a Debt Consolidation Loan? 

It depends. While a debt consolidation loan is typically unsecured (meaning you don’t need collateral), the terms you’re offered will largely depend on your credit score. Most lenders prefer a credit score of at least 610, but you’ll get far more favorable terms if your score is 720 or higher. 

You can prequalify for a loan before submitting your application, which allows you to preview the terms you might receive. Prequalification involves a soft credit inquiry that won’t hurt your credit score. 

How Much Do I Need to Borrow? 

Again, it all depends. How much debt do you have? Which specific debts do you want to consolidate? Answering these questions can help you determine a total amount to borrow.

If the thought of crunching those numbers makes your head spin, online debt consolidation calculators can simplify the process. These tools allow you to input your debt balances and interest rates to estimate how much you might need to borrow and what your monthly payments could look like.

Lenders often set minimum and maximum borrowing limits for personal loans. These amounts typically range from $3,500 to $5,000 on the lower end, with maximums reaching $50,000 or more.

How Long Will It Take Me To Pay This Back? 

Of course, the main goal of consolidating your debt is to streamline your multiple debts into one payment. But how long it takes to pay off the loan depends entirely on the terms of your debt consolidation loan.

Lenders often offer loan terms ranging from 12 to 60 months, or even longer than that. When you’re searching for the right loan, you’ll need to decide whether to prioritize paying off your debt quickly or lowering your monthly payment. 

A longer loan term often means a lower payment but higher total interest paid over time. On the other hand, a shorter loan term can help you pay off the debt faster and save on interest — though you’ll be taking on a higher monthly payment. 

When you’re feeling overwhelmed by debt, it’s tempting to view debt consolidation as a quick fix. While the process has its advantages, it also comes with potential downsides. Making an informed decision requires asking yourself these four essential questions to determine if it’s the right financial move for you. 

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