6 Questions to Ask When You Consider Debt Consolidation (2024)

If you’re struggling with bills, debt consolidation can be a sensible option to streamline your finances and ease your mind.

However, if you’re unfamiliar with debt consolidation, you may not know the right questions to ask. Before you select a lender and sign on the dotted line, it’s important to familiarize yourself with not only the basics of consolidating debt, but to prepare yourself with the right questions to ask so you can make an informed decision.

We’ve rounded up some frequently asked questions about debt consolidation, so you can approach lenders with confidence and make the right decision for your financial needs.

1. How does debt consolidation work?

One of the most common debt consolidation questions is also the most basic: What is it and how does it work?

Debt consolidation is the process of combining multiple debts into one through a personal loan. For example, if you have five different debts – perhaps credit card balances, medical bills and outstanding utility bills – totaling $8,000, you could apply for one debt consolidation loan for that amount. If approved, you can pay off several bills at once and simplify your expenses by replacing them with only one monthly payment going forward.

2. How much do I borrow?

Now that you know what debt consolidation is, you’ll need to figure out how big of a loan you’ll need. Before asking a loan specialist, consider crunching some numbers with a debt consolidation calculator, which helps estimate bills you’d like to consolidate and gives you an idea of what monthly payments might look like. Some calculators also allow you to adjust the annual percentage rate (APR) and loan term to see how they would impact your payments.

Once you have a ballpark idea of potential monthly payments, you’ll be even more prepared to approach a lender with other questions.

3. What’s the process for taking out a debt consolidation loan?

As long as you’re dealing with a credible lender the process should be clearly outlined and able to be completed in just few a steps.

If you've found a lender you'd like to work with, contact them to discuss what offers you might be eligible for. At OneMain, you can do this online by providing some information about yourself, including the amount you want to borrow, to see if you’re prequalified for a loan in that amount. This gives you an idea of loans you might be eligible for. If you have one or more prequalified offers, you can submit a loan application. If approved, you’ll open your debt consolidation loan and use the money to pay your debts.

4. Why should I take out a debt consolidation loan versus other options, such as a credit card balance transfer or home equity loan?

This is another common, and important, discussion question about debt consolidation, and one that depends on your circ*mstances. Each debt consolidation option has its positives and negatives.

For example, home equity loans may offer fixed interest rates and longer repayment terms. Plus, the interest you pay may be tax deductible. But, you’ll also need to factor in closing costs and fees, reduced equity in your home and the risk of foreclosure if you default on your loan.

Credit card balance transfers are often an attractive option because of their low interest rates and potential reward programs offered by the lenders. While you can save money on interest through low introductory rates, those typically end after 6-18 months and may also include transfer fees, so make sure you're aware of how much this will add up to before you take on the new debt.

Personal loans also feature fixed interest rates with the added benefit of fixed monthly payments. While there’s the potential to earn rewards, you could pay origination fees. (We break down some additional pros and cons of personal loans for debt consolidation below.)

5. Is my debt eligible for consolidation?

Since lending requirements vary, a good question to ask about debt consolidation loans is if your debt is eligible for consolidation. Common forms of debt accepted include credit card debt, medical bills and personal loans.

While many banks, credit unions and loan companies offer consolidation loans for both secured and unsecured debt, not all do, so be sure to ask about that as well. (If you’re uncertain about what kind of debt you have, our primer on differences between a secured and unsecured loan can help.)

6. What are the pros and cons of debt consolidation?

As with all debt solutions, debt consolidation comes with both advantages and disadvantages. What’s right for you depends on your unique financial situation. Here’s a quick list of pros and cons to consider:

Pros

• Pay several outstanding balances off at once
• May come with fixed interest rate and monthly payment
• One payment to one lender
• A lower combined loan payment frees up cash in your monthly budget

Cons

• Potential loan origination fees and prepayment penalties
• It may take you more time to pay down all your personal debt
• Could pay more in interest over the life of the loan, if the rate is higher or the term is longer

If you’re interested in weighing the advantages and disadvantages of debt consolidation, you may find our article on what you should know about debt consolidation useful.

Take your time, do your research and ask the right questions

There’s no one-size-fits-all approach to debt consolidation. That’s why it’s important to take the necessary time to do your research and ask debt consolidation companies the right questions. You’ll know when you find the right lender. And that means signing on the dotted line with greater confidence – and achieving better results.

Interested in exploring debt consolidation? Visit our debt consolidation loan page to learn how a OneMain personal loan can help streamline your finances.