Should I consolidate credit card debt?


Q. Should I consolidate all my credit cards to one lump sum by taking a loan and paying off all those high interest cards off? How would I find this loan?
— Trying to improve

A. The short answer is yes.

A personal loan could allow you to make one monthly payment over a 12-month period or longer, depending on the amount needed to pay off your credit cards, said Betty Thomas, a financial planner with Lassus Wherley in New Providence.

She said the interest rate on the loan should be lower than the credit cards, and then you will save money over time.

Thomas said it is important to have a good payment history with the credit cards and any other loans you have or may have paid off.

“Lenders reviewing loan applications will scrutinize your borrowing history,” she said. “They may review your credit report for late payments, credit line increases or loan defaults. They will also consider your credit score.”

Another thing a lender will review is your debt-to-income ratio. This is the part where they ask for your pay stubs — they want to make sure your income can support the loan, Thomas said.

“If you’re ready to research applying for a personal loan, visit banks in your area and compare rates,” she said. “Discuss your situation with the lenders and ask what information would be required before applying for a loan. You should also ask how applying for a new loan would affect your credit score.”

Finally, be sure you don’t start adding more debt to the credit cards once their balances are clean. You’ll just end up in a worse place than you are now.

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