PostHeaderIcon Is it a silly idea to get a debt consolidation loan to pay off another loan?

Someone told me to do that to pay off my student loans and credit card bills.

4 Responses to “Is it a silly idea to get a debt consolidation loan to pay off another loan?”

  • John W says:

    It depends upon the interest rate of the new loan compared to the interest rate of the existing loan. Have to know more about the terms of the loans, etc.

  • Patrick M says:

    If the interest rate on the student loans and the credit card balances is greater than the the rate of the consolidating loan, then it makes sense to consolidate and pay off the higher interest loans.

  • pack1710 says:

    It is not silly. It is only silly if you plan to use the consolidation loan to free up income so that you can take on more debt. Moving debt around does not actually do anything. It does not pay the loans off just changes the name on who you owe the money to.

    Especially do not do it if you are moving debt that you received with just your signature (credit card) to debt with collateral( home equity loan or second mortgage). You dont want those idiots that collect to be able to dangle your house in front of you if your late on your payment.

    Make a list of your loans listed smallest to largest balance. The interest rate does not matter. If you can get it reduced that would be awesome! Work on that. No use paying those guys more than you have too.
    Pay the smallest first then snowball your payments till your debts are paid off. ATTENTION: This only works if you draw a line in the sand to live debt free. There is nothing better than having an emergency fund and no payments. Then you really are free. email with any questions

  • aj485 says:

    To pay off credit cards – maybe not, depending on the rates on the credit cards vs. the rate on the consolidation loan. If the consolidation loan is at a higher rate, then yes, it’s silly. Otherwise, it can save you money.

    As far as student loans – if they are government guaranteed loans – they have benefits that a consolidation loan doesn’t have, such as the ability to forego payments if you lose your job or go back to school, and the ability to have the loan forgiven if you become disabled or die. So unless the rate is significantly higher on the student loans than it is for the consolidation loan, yes, it’s silly to pay those off using a debt consolidation loan.

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