About Consolidation Benefits

Types

Consolidation can come in a few different forms. You may take out a home equity loan as a means to consolidate your bills. With a home equity loan, you're consolidating your debt with a loan against your home. Two other popular methods of consolidation are zero percent credit card balance transfers and debt consolidation loans. Debt consolidation loans are provided by lenders and banking institutions. Zero percent credit card balance transfers are provided by credit card companies that allow you to transfer existing credit card balances onto their credit card with a zero percent interest rate.

One of the main benefits that attracts consumers to consolidations is the convenience factor. Having one place to pay is much simpler for most, as opposed to dealing with several creditors. If you have several bills or more, due at various times throughout the month, keeping up can become a tedious task. Paying one creditor once a month is why many consumers choose consolidation.

Consolidating all of your debt into one large payment allows you to pay off all your bills faster. Credit cards may have interest rates of 25 percent or more. The interest rates on most consolidations are no higher than 15 percent. Interest rate on your consolidation is determined by your credit history. If your credit score is 675 or better, you may pay as low as 5 percent to consolidate your debt. If you do a credit card balance transfer, most credit card companies offer you a 6 to 12 month zero percent grace period. Consolidation loans generally last from 5 to 10 years. In some instances, a consolidation may last up to 25 years depending on the amount of debt you're consolidating.

If your credit is less than stellar, a consolidation may give you a chance to get back on track. Once your consolidation is near completion, and assuming you've made most if not all payments on time, your credit score will probably increase.

Though the benefits for consolidation may be appealing, there are some things you should be aware of. Many consumers who consolidate, tend to run up the same debt amount or higher shortly after completing consolidation. If you conduct a credit card balance transfer, after the 6 to 12 month grace period of zero interest, the interest rate on your balance transfer may go as high as 27 percent.