Debt consolidation can make sense when replacing several expensive debts with one loan gives you a manageable payment and potentially lowers your overall borrowing cost. Instead of making separate payments to multiple creditors, you may use a consolidation loan to pay off those balances and then make one scheduled loan payment.
However, consolidation is not automatically a money-saving strategy. You need to compare the new loan’s APR, fees, repayment period, and total interest with what you would otherwise pay on your existing debts. A longer repayment term could reduce your monthly payment while increasing the total interest you pay.
It is also important to address the reason the debt accumulated. If you consolidate credit card balances but continue adding new debt, your financial situation could become worse. Before proceeding, calculate the numbers carefully and make sure the new payment fits your budget. A personal loan calculator can help estimate the payment and total cost.
