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Do Consolidation Loans Really Provide Debt Relief?

Nov 15, 2022 | Blogs

Are you drowning in debt, feeling as if there is no escape? Have you lost hope that you’ll ever catch up to your debt and breathe easy again? You’re not alone. As the recession looms, interest rates rise, and inflation continues its upward momentum, many Floridians find themselves with mounting debt. The average credit card holder in Florida owes $7,049, and Florida tops the list of states with medical debt.

You’ve probably seen advertisements or gotten letters with offers for consolidation loans. The critical question is, do consolidation loans provide debt relief, or will they leave you in an even worse-off financial position?

Learning more about consolidation loans from a debt lawyer, especially if you’ve been feeling harassed by creditors, can help you determine your next financial move.

What Is a Consolidation Loan?

A consolidation loan puts money in your pocket to pay off all your debt collectors at once. Instead of paying off each account singularly and managing several balances, a consolidation loan provides debt settlement to outstanding creditors, and the loan company becomes your new creditor.

After being approved for a consolidation loan, you will begin paying the loan consolidation company monthly, and your other debt is erased.

Here’s how it works: you typically get a letter in the mail with a debt consolidation offer. The letter offers a sum of money (anywhere from $10 to $50k or more) to pay off your debts, and the letter will typically promise a lower interest rate than your credit cards.

In return, the company that sent you the letter becomes your new creditor, and you make a single payment to them.

Consolidation loans can be tempting because you can lower both your monthly payment and your interest rate (referred to as APR or annual percentage rate). You only have to pay a single creditor instead of tracking multiple monthly payments.

Debt Consolidation vs. Consolidation Loans

There are several ways to get out of debt besides filing for bankruptcy, including debt consolidation and consolidation loans.

However, Florida residents are often unaware of the difference between a consolidation loan and debt consolidation. Though the result is often the same (you renegotiate your payment terms and make a single payment each month), the logistics are different.

Debt consolidation condenses all your existing loans into one monthly payment. The monthly payment is distributed to your creditors to satisfy outstanding creditors.

On the other hand, a loan consolidation involves taking out a new loan to pay off the original creditor or creditors. You are immediately out of debt with your existing creditors, and now you have a single creditor – the loan consolidation company.

Benefits of Loan Consolidation

There are several potential benefits of loan consolidation, including:

  • Lower monthly payments: When your loan gets consolidated into a single account, the average monthly payment tends to decrease.
  • Convenience: You’ll now have just one monthly payment to make instead of keeping track of and paying off multiple accounts. This can be helpful if you’re worried about forgetting to make a payment and accruing late fees and penalties.
  • Flexible terms: When you do a loan consolidation, you may have some control over your interest rate and monthly outlays.

Potential Pitfalls to Be Aware of with Loan Consolidation

Even though loan consolidation can be tempting, unsuspecting borrowers need to be aware of the following:

  • You could end up paying more: Even though loan consolidation can lower your monthly payments, these programs often extend the term of your loan. As a result, those lower monthly payments come at the expense of accumulating interest, which causes your overall balance to increase.
  • You might not get a good interest rate: The letter you get in the mail might advertise a low-interest rate, but typically, that rate is reserved for people with excellent credit. The average rate hovers around 19.4%.
  • You still have the debt: Unlike other debt resolution solutions, a loan consolidation leaves you with your debt.
  • Extended loan terms: Having credit cards with high interest rates could motivate you to pay down your debt faster. However, if you’re able to secure a lower rate, you might end up taking longer to pay off your debt (which costs you more in the long term due to accumulated interest)

The Bottom Line

Loan consolidations can provide debt relief for some Floridians, but they’re not the best option for everyone. The promised lower monthly payments come at a cost – namely, paying more interest over the life of the loan. This is especially true if the loan consolidation comes at an APR higher than your existing unsecured debt.

Contact The Santos Law Offices, PA, to Determine If a Consolidation Loan is Right for You

If you’ve been feeling pressure from mounting debt or debt collection lawsuits, your search for a “debt attorney near me” is finally over. At The Santos Law Offices, P.A., we treat our clients like family and work hard to help people eliminate their debt and protect what they own. For a free consultation, please call us at (305) 417-4111, or fill out our online form.

Copyright © 2022. The Santos Law Offices, PA. All rights reserved.

The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.

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Miami, FL 33144
(305) 417-4111

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