Perhaps you’ve heard ads encouraging you to consolidate all of your debts into one easy payment, telling you this is the way to get rid of your debt. Before you take that road, there are some important questions you should ask.
- What’s the rate of a debt consolidation loan? It may only be one rate, but if it is higher than your other rates, that’s no bargain.
- Is the interest rate adjustable? Perhaps it’s a good rate now, but where will it be in a year or two from now?
- What is the term of the loan? How long will it take you to pay it off? Will it take longer to pay off than if you paid the individual debts on your own? If so, you’ll be paying more interest over the long term.
- Are there prepayment penalties? If you’d like to pay off the loan early to save yourself some of the interest, will you have to pay a fee?
- What are the terms and cost of the loan? Study them carefully, do they really benefit you?
- Does it fix the problem or extend it? Are you locking yourself into a situation where you will be forced to pay more interest over a longer period of time, which would extend the debts?
Remember you can always talk to your Home Purchase Advisor at Homewise and review the advantages and disadvantages of debt consolidation. Call us at 505-983-9473.