A debt consolidation loan can be an effective tool to help you pay off high-interest debt, but it’s not right for everyone. Make sure to weigh the pros and cons and consider alternative strategies. (iStock) A debt consolidation loan is a borrowing tool that allows you to combine existing unsecured debts into a single personal loan. This type of loan can help you to pay off debt by reducing your interest rate and consolidating multiple monthly payments into just one. A debt consolidation loan can be an effective tool but it’s not right for all situations. Keep reading to get a breakdown of when a debt consolidation loan might be a good idea, as well as some alternatives you can also consider. To start exploring your personal loan options, visit Credible to compare rates and lenders. THIS IS HOW DEBT CONSOLIDATION HELPS EXPEDITE YOUR PAYOFF GOALS Can debt consolidation harm my credit? Before taking out a personal loan, it’s important to consider the potential impact on your credit score, as there could be both positive and negative effects. First, a personal loan can increase your credit score by decreasing your credit utilization and diversifying your credit mix. But it can also hurt your score by creating a hard inquiry on your credit report and reducing the average length of your credit history. You can visit Credible to check your credit score without negatively impacting it. WHAT IS THE BEST WAY TO TACKLE CREDIT CARD DEBT? When should I use the "debt snowball" or "debt avalanche" methods? Two popular debt payoff strategies are the debt snowball and the debt avalanche methods. The debt avalanche involves making the minimum payment on all of your debts except the one with the smallest balance. Any extra money you can put toward debt goes toward that smallest one. This strategy helps to create quick wins that keep you motivated. A debt avalanche is similar, except instead of prioritizing the debt with the smallest balance, you prioritize the one with the highest interest rate. This strategy helps you to save the most money on interest. Both the debt snowball and avalanche methods can be great strategies to help you pay off debt. The downside is that, unlike a debt consolidation loan, you aren’t lowering your interest rate. Instead, you can use one of these strategies alongside another, such as a personal loan. Should I consider credit card refinancing instead? Credit card refinancing, also known as a balance transfer, is when you transfer your credit card debt from one card to another. Many credit card companies offer deals where you’ll pay as little as 0% on your balance transfer for the first 12-18 months. As a result, your monthly payments go entirely to your balance rather than being eaten up by interest. Credit card refinancing is best suited for someone who can pay off the entire balance during the introductory 0% period. Otherwise, you may find yourself paying high interest rates. To shop around for a balance transfer card, visit an online marketplace like Credible to view multiple 0% credit card options at once. CREDIT CARD REFINANCING VS. DEBT CONSOLIDATION: WHAT’S THE DIFFERENCE? Can you qualify for a better interest rate on a debt consolidation loan? The benefit of consolidating your debt into a personal loan is that you can often reduce the number of monthly payments you make and more importantly, reduce your interest rate. After all, credit cards have notoriously high interest rates, which can slow down your debt repayment. Before closing on a personal loan, make sure you’re eligible for a lower interest rate. The good news is that personal loan rates often start at less than 5%, but the best rates are only available to those with good credit scores. With poor credit, the rate on a personal loan could be close to or even higher than the rate on your credit cards. To find out what personal loan rate you might be eligible for, visit Credible to get prequalified without affecting your credit score. 4 TYPES OF DEBT CONSOLIDATION LOANS YOU SHOULD AVOID Make a plan to stay out of debt Whether you’re using a debt consolidation loan, a balance transfer, the debt snowball method or another strategy to tackle your debt, it’s critical that you have a plan. Unfortunately, many people utilize one of the tools available to consolidate credit card debt, only to find themselves back in debt soon after. Before taking any steps to consolidate your debt, make a commitment to yourself not only to pay off the debt but also to avoid taking on additional unnecessary debt. What’s next? There are plenty of strategies available to help you reduce your interest rate and pay off debt more quickly, including a personal loan. Visit Credible to get in touch with experienced loan officers and get your personal loan questions answered. Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column. Source: Read Full Article