Survey: Debt Consolidation Pays Off for 69% of Borrowers

Debt consolidation loans can help consumers pay off debt faster in a single monthly payment, but borrowers need to look out for scams.

Consumers who are having trouble keeping up with various credit card bills and loan payments may find relief through debt consolidation. The repayment of one or more forms of debt in a single monthly payment at a set interest rate is possible through the use of a personal loan as a debt consolidation strategy.

Debt consolidation loans may enable consumers to save costs while paying off their debts more quickly, but do they always function as intended? U.S. News conducted a survey of 1,202 customers who had ever taken out a debt consolidation loan in January to get the answer to this question. To learn how taking out a personal loan to pay for debt consolidation affected respondents' finances, we put them through a series of questions. Here is what we discovered:

The majority of borrowers (69%) claim that since consolidating their debt, their financial situation has improved. 50 percent of them claim to be less concerned about being able to make their debt payments, 44 percent claim to be able to put more money toward paying off other debts, and 37 percent claim to be able to put more money toward savings. Similarly, 69% of respondents said they would advise a friend or family member to take out a debt consolidation loan.

Upon the establishment of a debt consolidation loan, more than one-third (36%) of borrowers believe their credit ratings increased while 26% claim their scores decreased. A fifth of borrowers, or 20% and 18%, respectively, said there was no change.

One-third of respondents (33%) stated that they had opened a debt consolidation loan in order to pay off their debt more quickly. Also, they desired to reduce their monthly payments (20%) and consolidate several invoices into one (21%) in order to streamline their debt repayment.

The most typical debt that debtors merged was credit card debt (68%), followed by other personal loans (27%), medical expenses (26%) and payday loans (21%). About two-thirds of respondents (66%) combined debt totaling $5,000 or more, and 30% combined debt totaling $10,000 or more.

Most applicants made plans before applying for a debt consolidation loan. Before applying, 53% of applicants made steps to raise their credit score, and close to 70% looked about to compare interest rates from various lenders.

A third (35%) of borrowers wish they hadn't taken out a debt consolidation loan. The most often voiced grievances, all at 38%, are that the interest rate was more than anticipated, the monthly payments were excessive, the fees were excessive, and it was taking longer to pay off the loan.

When looking for a debt consolidation loan, over half of respondents encountered fraudsters, with 48% hearing about an offer that appeared too good to be true.
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