Debt Consolidation: Is It Better to Pay a Single Monthly Installment?
💡 Quick Tip
If paying multiple loans and cards is drowning your monthly economy, consolidation may seem like a magic solution. But is it really worth it? We analyze the process of merging all your debts into one, the hidden interest costs, and when it is a smart decision or a long-term trap.
What is Debt Consolidation?
Consolidation consists of grouping all your outstanding loans (mortgage, car, cards, personal loans) into a single new loan. The main goal is to reduce the sum of the monthly installments, allowing you to breathe at the end of the month. Usually, this is done by extending a mortgage or asking for a specific consolidation loan.
📊 Practical Example
You have three debts: a $3,000 card ($150 payment), an $8,000 car loan ($250 payment), and a $4,000 personal loan ($200 payment). Total: $600/month. You struggle to pay. You consolidate everything into a $15,000 loan for 8 years. Your payment drops to $220. You freed up $380 a month! But beware: you were going to finish paying in 3 years. Now you will be paying for 5 more years. Those $380 you "save" today will cost you about $4,500 extra in total interest by the end.
