Debt consolidation may help you organize your credit card debt by combining all debts into one loan. This debt-relief method allows you to repay all your credit cards with only one payment per month. Debt consolidation loans are one way consumers choose to tackle their debt; however, you should fully understand the benefits and potential shortcomings of this method before obtaining a loan.

Debt consolidation loans can possibly provide three unique benefits for paying off credit card debt:

      • The convenience of dealing with only one lender, not multiple creditors
      • A reduced interest rate on your debt
      • A lower monthly payment than the combined total of your previous bills

Debt Consolidation Lenders

Various types of financial lenders exist to help you obtain a debt consolidation loan. These lenders offer loans, such as personal loans, to allow borrowers to repay their credit card debt. When you receive the loan, you can then pay off each credit card and deal with one monthly payment to one lender.

Consolidation Loans Can Reduce Interest

One of the primary advantages for using a debt consolidation loan is a lower interest rate. A typical credit card rate could be in excess of 20 percent. However, the interest rate for debt consolidation loans are normally below 10 percent—your credit score will play a factor in determining your rate. Thus, the lower rate can save you on overall interest paid. Nevertheless, be cautious that you do not extend your debt for a long period. You may end up paying more in interest charges even with a low interest rate if you are making payments for 15 years or more.

Low Monthly Payment on Consolidated Debt

Credit card bills, even just the minimum payments, can add up and become a burden to pay each month. Yet, a debt consolidation loan may reduce your monthly payment anywhere from 30 to 60 percent. This means that you will free up some funds to pay for unexpected expenses or simply give you some financial breathing room.

Credit card debts can put a significant strain on your income and personal life. If you are able to get an advantageous interest rate on a debt consolidation loan, then it can lighten your financial load. However, you need to be cautious before signing any dotted line and do your own calculations to see if the loan will, in the end, save you money.