Assuming you're able to secure a lower APR than the weighted average cost of your existing debt, a debt consolidation loan can reduce your interest expenses over time. If possible, we recommend that you dedicate any monthly savings from your debt consolidation loan toward aggressively paying off your remaining debts. This will further reduce your interest expenses and leave you debt-free faster. Plus, if you're using your debt consolidation loan to pay off revolving debt from credit cards or lines of credit, you may improve your credit score.
Debt consolidation allows you to simplify your loan payments. Instead of paying multiple creditors, you're now only dealing with one lender. This is especially helpful if you're juggling multiple due dates or interest rates on separate credit cards. Having a single creditor reduces the likelihood of an accidental missed payment, which can wreak havoc on your credit score. Transforming existing revolving credit into installment credit through a debt consolidation loan also diversifies your credit mix, which may further improve your credit standing.
Reducing monthly payments is a big reason many people choose debt consolidation loans. The minimum monthly payments on several credit cards and short-term loans can quickly add up to unmanageable figures. By consolidating your debt, not only do you simplify your monthly payments, you restructure your debts and reduce your monthly payments as well by stretching them over a longer period of time. This can provide borrowers with more breathing room. However, borrowers should take care not to stretch out their payment period too far — this increases the overall interest expense on the loan, as detailed below.