Consolidating your debt may not save you money this May. Here's why.
Summary
Debt consolidation may not always save money for borrowers because personal loan rates can still be high, fees may reduce savings, and longer loan terms can increase total interest paid. Alternatives like balance transfers with low or zero interest may be better options for some people with good credit.Key Facts
- Household debt keeps rising, and credit card interest rates remain high.
- Debt consolidation means combining multiple debts into one loan, usually aiming for a lower interest rate and easier payments.
- Personal loan interest rates range widely from about 6.2% to 35.99%, with the lowest rates for people with good credit.
- Many borrowers paying around 22% interest on credit cards might not save money if their personal loan rate is 25% or higher.
- Some lenders charge origination fees that add upfront costs and reduce possible savings from consolidating.
- Extending the loan term to lower monthly payments can increase the total interest paid over time.
- Balance transfers with 0% promotional interest for 12 to 21 months can be a good alternative for those with strong credit.
- Borrowers should review their credit score, loan fees, interest rates, and repayment length before choosing debt consolidation.
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