What to know about debt consolidation

The concept of a debt consolidation loan is admirable and intelligent — pay off a bunch of high-interest-bearing loans with one loan that has a low interest rate. But frankly, this is easier said than done, so if you’re thinking of dipping your toe into the debt consolidation pool, here’s what you should consider first.

Good loans are hard to come by

If you have several loans with relatively high interest rates, you’ve never missed a payment and your credit score is high, you probably will be able to get what you’re looking for from either a bank or a low-interest credit card that you can then move all of your other debt to. But by the time most people think that they need a debt consolidation loan, they are likely struggling with making payments, and their credit score has probably taken a hit — meaning your odds of getting a good debt consolidation loan worth taking are just about nil. In which case, don’t do it.

Beware of companies bearing promises

A bank is one thing, or transferring money to a credit card. But a debt settlement company that promises to lower interest rates and reduce your monthly payment so you make one payment to them has historically been a rotten deal. That’s why, starting Oct. 27, Congress has outlawed debt settlement companies’ ability to charge customers an upfront fee for their services.

Low-balance transfers

Yes, it can be smart to transfer your credit card debt onto one card with a lower interest rate. Just make sure that the lower rate isn’t going to climb considerably within a few months; and if you’re going to put all of your debt onto one card, cancel the other cards once the money is gone from there. Otherwise, you run the risk of giving into temptation and piling debt onto those credit cards, mocking all of your admirable efforts to form a solid debt consolidation strategy.