Consumers are still considering options for debt consolidation in a variety of cases as some are simply looking for a way to group multiple obligations into one place and begin repaying these debts while others face high costs in relation to the total amount of debt payments and they must make each month and feel that a consolidation loan will help lower these costs so that missed payments for financial distress may be avoided. However, when it comes to handling current rates that are available on personal loans that can be used for consolidation, consumers must be sure that they are in a financial position to not only take advantage of any benefits that a consolidation loan might bring, but they also need to factor in interest rate costs as a result.
There have been areas around the country where consumers are seeing reductions in the amount of debt they owe, which could be positive in some cases since there are still numerous men and women who are out of work or facing financial problems as a result of issues like overspending, poor money management, or underemployment. While the economy needs consumers to purchase goods and services, when an individual builds debt to an extent where they cannot repay what they owe there are obviously backlashes seen for businesses and other consumers who may have to carry the weight of losses that businesses see in the form of higher prices or rates.
However, it’s because consumers are hoping to avoid defaulting on debts that some turn to these debt consolidation loans or simply use personal loans as a way to group all of their debts into one place, but many advertised rates on personal loans can average anywhere between 12% to 30%, with some consumers seeing averages within this range that may be around 18%. Yet, consumers must remember is that the rate they receive on a personal loan will heavily depend on their personal financial position so looking at average rates that may be available from certain lenders can be helpful but even these averages may not be what are offered if a consumer decides to pursue a loan for the purposes of consolidating debts.
One factor that goes into a consumer’s credit score, which is also one area that impacts what rate a consumer may receive on their personal loan, is the amount of debt they have when compared to their income. If consumers have a large amount of debts and are looking to acquire a loan, this could be problematic for those who are attempting to erase these multiple obligations and consolidate them into one location, as a lender may see a consumer as a risk to acquire debts beyond that consolidated amount even if they pay off what they owe.
As an example, a consumer may face higher overall costs if they pay off multiple credit card debts with a personal loan and begin to pay down this consolidated debt over time thanks to interest, but they may also make the mistake of using these credit cards to make purchases they cannot fully pay off on a monthly basis, which could potentially put the consumer in a position where they can no longer honor these credit card debts or their personal loan debt obligation.
It’s because of risks like this that some consumers may get a high rate on a personal loan or be denied a loan altogether, but when it comes to debt consolidation consumers have been advised by financial professionals to make sure they understand that simply moving debt around is really not paying off what they owe and this consolidated debt needs to get their full attention. Some consumers may be able to budget and save in a way that will allow them to pay more than the minimum requirement on a debt consolidation loan which could lower overall costs and help them repay what they owe much faster, but consumers must also look at options outside of personal loan debt consolidation opportunities for debt relief, as financial counselors or personal decisions on the part of consumers may potentially help pay off what consumers owe faster and at lower overall costs than one of these personal loans.