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When you pay off all your credit cards, auto loans and other loans your credit rating will improve when these are marked as paid in full. Instead of managing several due dates and having to write several checks, you write just one check and make just one payment. Still the situation must be examined in great detail before you can decide if the loan really makes sense.
There are some issues that must be considered, however. Depending on the length of the loan and the interest rate, you may end up paying more in the long run. A lower monthly payment is very enticing. Having a low month payment may give you some breathing room. However, you must keep in mind that over the life of the loan you will be paying more than if you had paid off the original debts.
If you qualify for a low interest rate the loan has a good chance of being a good deal for you. Be careful of stretching the loan out for a long time. It may be better to pay a higher monthly payment but have the loan paid off in a few years. It is not difficult to do the math. A low monthly payment may seem attractive, but it will be more expensive over the long term. You could always try for a low monthly payment for a few years and then renegotiate the loan when you are in a better position.
A good place to seek some objective help is a non-profit credit counseling service. Their fees are based on a sliding scale so they are very inexpensive. They will take a look at your financial situation and advise you on your best course of action. Credit counselors can negotiate with your creditors. Often they can stop interest from being charged on credit cards. They will work with your creditors to make a plan where you pay off all of your debts over a period of a few years at no interest or a reduced interest rate.
If you can consolidate your debts with a second mortgage on your residence you will have the extra benefit of a tax deduction. Reducing your taxes makes a home equity line of credit a more attractive deal. You may be able to refinance your mortgage. If your house has increased in value you may be able to get a bigger mortgage and use some of the proceeds to pay off credit cards.
Many people require advice and counseling to help them with their financial affairs. Too many people are ignorant and shortsighted when it comes to money and credit. They lack discipline and make impulsive buying decisions. If you are one of those people you need to get help with some credit and financial counseling. Counseling will help you form better attitudes about money and credit.
A debt consolidation loan could be a smart decision or it could be a disaster depending on the details. You must consider the interest rate, the length of the loan, the interest rates you are currently paying, and your prospects for future earnings. All these factors must be considered in order to make a good decision.
