Whether you’re struggling to pay off multiple credit cards or have trouble prioritizing student loans over medical bills, it’s easy for debt to become unmanageable. Fortunately, if you’re looking for financial relief, you may be able to strengthen your repayment strategy with debt consolidation, or the process of combining multiple balances into a single loan. If you’re considering options for debt help, here are five frequently asked questions that shed more light on consolidation.

5 Debt Consolidation FAQ

How does debt consolidation work?

First, you’ll need to compile all information regarding the accounts you want to pay off—such as credit cards, auto loans, and personal loans. Next, research lenders that offer consolidation loans and compare rates.

Once you apply and get approved for a plan that fits your budget, the total balance of your consolidation loan will be used to pay off the previous debts. You’ll only have to pay the one bill.  

How will it benefit me?

If you have a good credit score, you may qualify for a consolidation loan with a low-interest rate. If the rate is lower than that of your outstanding accounts, you can minimize your payments and possibly pay the debt off faster.

Consolidation will also ensure you don’t have to deal with multiple creditors and the collection calls that come with being past due.

Will it impact my credit score?

While applying for a consolidation loan can temporarily lower your credit score, this solution doesn’t need to have a long-term effect on your creditworthiness. As you make on-time payments toward the loan, you will gradually reduce your total debt and boost your credit score.

What are the differences between secured and unsecured debt consolidation loans?

Unsecured consolidation loans are those provided without any collateral. They’re typically reserved for individuals with smaller balances or good credit scores.

Secured loans are those that require collateral, such as a house. If you default on repayment, the creditor will take the collateral to minimize their financial losses.

What if repayment with consolidation still isn’t feasible?

Debt consolidation doesn’t work for everyone. If you’ll have trouble paying off this new loan, you may want to consider more aggressive measures of debt relief, such as settlement or personal bankruptcy.

Before you move forward with any debt relief strategies, discuss your options with Donald L. Spafford, Jr., Attorney at Law. For more than three decades, this attorney has helped Honolulu, HI, residents explore solutions for resolving bad debt to create a brighter financial future. After reviewing your circumstances, Spafford and his team will devise a custom strategy that’s best for your situation, such as debt consolidation, settlement, or personal bankruptcy. To learn more about these resources, visit this Oahu bankruptcy attorney online, or call (808) 532-6300 to schedule a free initial consultation.