Consolidating Outstanding Loans

The Money Minute is brought to you by Mary Hurlburt, the Director of Community Outreach.

June 5, 2008

Consolidating Outstanding Loans

Is it good to consolidate outstanding loans?

Consolidating (or combining) outstanding loans may be a good idea if:

• the new interest rate is less than the interest rates on your current debt
• the fees associated with signing up for the new loan don’t eat up any savings the new loan is providing
• you aren’t trading unsecured debt (such as higher-interest credit card debt from a lender) for secured debt (such as a lower-interest mortgage or car loan from a bank).

Beware of anyone whose sales pitch focuses on “lower payments” rather than a lower interest rate. Spreading a loan out over more years can lower your payment, but it may also increase the amount of interest (or money) you’ll repay over the life of the loan.

When considering any consolidation loan, be sure you are working with a reputable financial institution. And remember, cold call offers from 800 numbers are rarely a good deal. If it sounds too good to be true, it probably is.

Mary Hurlburt is the Director of Community Outreach at Consumer Credit Counseling Service. Do you have a question for Mary? Email her at mhurlburt@cccservices.com.