How Debt Consolidation Works and Downsides to Watch Out For
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What is the main topic discussed in this episode?
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Here's your money briefing for Thursday, December 29th. I'm J.R. Whelan for The Wall Street Journal. Our special series on how to get yourself out of debt continues. Paying down debt can be messy.
What is debt consolidation and who is it best for?
It can also be easy to lose track if you have a lot of outstanding debts. So today we're taking a look at debt consolidation, which can let you gather all of your outstanding debt and combine it into one loan.
It's based on your own personal financial history. And if you can qualify for loans that cost less, offer lower interest rates than what you were paying before, it could be a good option.
So how does debt consolidation work? And what risks do you need to be aware of? Sarah Rathner is a personal finance expert with NerdWallet. She'll take us through the nuts and bolts of debt consolidation after the break.
This podcast is brought to you by ReliaQuest. Cyber criminals are constantly attacking. They want your data. They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest, agentic defense for the enterprise. Learn more at ReliaQuest.com. That's R-E-L-I-A-Q-U-E-S-T.com.
For a lot of people who are trying to get out of debt, it can be a challenge managing various past debts, all with different terms and interest rates.
How does rolling multiple balances into one installment loan work?
It can make the process confusing, not to mention expensive. Debt consolidation programs promise to make the process more manageable, but what are the downsides? Here to talk about the pros and cons of debt consolidation, we're joined by Sarah Rathner, a personal finance expert at NerdWallet. Hey, Sarah, thanks very much for being with us.
Thank you for having me.
So Sarah, just in simple terms, what is debt consolidation and who would be a good candidate for it?
Debt consolidation allows you to roll multiple debts into one single loan. So you're making one single payment to one lender, ideally at better terms, like a lower interest rate than you were paying before with multiple lenders. Who it's good for can depend on what you might qualify for. And that's different for everybody. It's based on your own personal financial history. And if you can qualify for loans that... cost less, offer lower interest rates than what you were paying before, it could be a good option. For some people, one of the benefits of consolidating your debts is that you can move your debt onto what's called an installment loan. So with credit cards, you might owe different amounts every month because interest is accruing, you're using your card to continue to make charges, and it can be hard to budget when you owe a different amount of money every month.
But if you consolidate onto an installment loan where you owe one amount of money and you make equal monthly payments until that amount of money is paid off, it can be a lot easier to budget for that since it's the same amount every month.
Who offers debt consolidation and where would someone even go to get it?
debt consolidation loans are offered by the same kinds of lenders you'd turn to for other kinds of loans like auto loans or mortgages things like banks or credit unions are very common options and you can shop around for different kinds of personal loans nerd wallet offers comparison tools that can be very helpful as well and you can see what these banks and credit unions are offering you might even want to start with a bank or credit union you already have a relationship and then compare
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–0:47
2
What is debt consolidation and who is it best for?
0:47–2:06
3
How does rolling multiple balances into one installment loan work?
2:06–5:00
4
Where can you get a debt consolidation loan and how should you shop?
5:00–7:50
5
How do rising interest rates affect debt consolidation decisions?
7:50–9:28
Speakers
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