When you’re overwhelmed with debt and have more monthly bills than you can count, it’s easy to feel like there’s no way out. That’s where a debt consolidation loan can help.

A debt consolidation loan, as the name implies, is a type of debt refinancing that consolidates several debts, such as credit cards, medical bills or other personal loans, into one debt that is then paid off with a personal loan financed through a credit union or bank. A debt consolidation loan can help you save money by lowering your interest rate from a typically high credit card interest rate to a lower refinancing loan rate.

Having your debt consolidated to one monthly payment can reduce the stress caused by having a number of different payments due each month and can help you budget your money and stay on-track and on-time with repayment.

Despite the advantages, a debt consolidation loan isn’t the right solution for everyone. There are some important questions to ask yourself before visiting the credit union to secure this type of loan.

Have I fixed the debt problem?

It’s important to consider why you’re in debt before consolidating. If you accumulated debt by overspending or using credit cards irresponsibly, you might want to think carefully about whether a debt consolidation loan is the right solution for your debt. While saving money with the lower interest rate on a loan will help, freeing up room on a credit card can make matters worse if you continue to indulge in impulsive spending. Be sure that your focus is on eliminating debt and not on being able to use your credit cards again.

However, if the source of your debt is a medical bill or a personal loan to cover some other temporary financial hardship, such as the loss of a job or car repairs, a debt consolidation loan could help you get back on track. Recently, a member came to the FSU Credit Union looking for a loan for car repairs. The member also had an outstanding loan on the car with another bank. Advisors at the credit union discovered they could save him money on not only the car loan, but also cover the rest of his debt, saving the member thousands of dollars in the process and helping him toward his goal of being debt-free.

Can I commit to a repayment plan?

Getting out of debt isn’t as easy as taking out a debt consolidation loan. Once you have the loan, it’s important to continue to work toward paying off the debt. If you’re already struggling to make minimum monthly payments on bills, a debt consolidation loan can only do so much. It’s possible that the lower interest rate will make repayment easier, but it’s also possible that bundling all of that debt together could result in a higher monthly payment over a shorter period of time. Before you speak to a loan officer at the credit union, figure out how much you can afford to put toward loan payments each month.

Is my interest rate the problem?

For some people, the biggest chunk of their debt is a student loan. These loans typically receive fairly generous terms in the form of low interest rates and flexible repayment schedules. Because of this, debt consolidation for most student loans isn’t advisable. You’re better off negotiating the loan repayment structure with your lender if the monthly payments are unrealistic.

On the other hand, if you’re dealing with credit card debt, your interest rate could certainly be part of the problem. Credit card debt interest regularly runs in the 20-percent range, more than twice the average rate of personal loans. Refinancing this debt with a personal loan can help you save on accruing interest and simplify your repayment schedule with one monthly bill.

Will a personal loan cover all my debts?

The average American household has nearly $15,000 in credit card debt. When you tack on an average of $28,000 in auto loans, it’s easy to see why debt is such a problem for most households.

Before taking out a personal loan for debt consolidation, you need to be sure your debt can be bundled together with a single loan. Most consolidation loans through the FSU Credit Union range from $6,000 to $15,000, but, in special circumstances, there are loans as high as $150,000.

If you have more than $50,000 in credit card debt, it’s probably going to be difficult to take out a personal loan that can finance the entire amount. However, if that’s the case, don’t lose hope. It’s still worth prioritizing your highest interest credit cards and consolidating those instead of trying to divide your refinancing evenly between all your debt. Tackling the largest problems first will help you focus your efforts and pay down your debts.

Debt consolidation isn’t the answer for everyone, but it may be an option worth considering. The ability to eliminate high-interest debt and simplify monthly expenses into one payment can change a family’s whole financial picture. The only way to know if a debt consolidation loan is right for you is to sit down with a loan officer to go over your situation.

For more information on debt consolidation or other financial questions, stop by any FSU Credit Union branch or call (850) 224-4960 (Tallahassee) or 877-GO-FSUCU (Toll Free).

*The content provided in this article consists of the opinions and ideas of FSU Credit Union, does not constitute legal or financial advice, and should be used for informational purposes only. Any decisions you make based on the information contained in this article is made in your sole discretion and liability. FSU Credit Union disclaims any damages or liability for decisions you make based on the information provided.

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