And while a consolidation loan for credit cards can be a good option when you have a lot of bills to pay off, there are plenty of alternatives to consider. Review your current financial picture and goals with a financial advisor or specialist certified credit counselor to determine the best plan for your needs.
Before you do, let's take a look at the pros and cons of each option.
Debt consolidation can take many forms, including a personal loan, a balance-transfer credit card, a home equity line of credit (HELOC) and a debt management plan, among others.
(We’ll get into the details of those options later on.) No matter what strategy suits you best, the idea is the same: Lump together all or most of your debts into a single payment as a way to save money, simplify your finances … For example, if you have multiple high-interest credit card debts and outstanding medical bills, you may want to take out a personal loan to repay those debts.
Then you can focus on repaying that personal loan, which requires just one monthly payment and, ideally, has a lower interest rate than what you were paying across multiple debts (it may not have a lower rate, but it’s in your best interest to find the lowest one you can).
The specifics of how debt consolidation works will vary by the type of debt you have and the method you choose.
You can take out a personal loan to pay off existing debts and then work to pay off that loan over time.
A home equity loan does not replace the existing mortgage as a cash-out refinance does, but it is another loan in addition to the existing mortgage.
Remember, you’ll need to not only put together a budget, but stick to it as well.
With a balance transfer, you’ll move credit card debt from all cards onto one existing or new credit card – ideally one with an introductory, interest-free or low interest rate offer.
It is also not a fit if you do not have a consistent source of income that more than covers your monthly payment.
Finally, bad credit can keep you from getting a good interest rate, which negates the main purpose of a debt consolidation loan.
This can be a viable solution if you think paying the card off within that promo time frame is doable.