Three Smart Questions to Ask Before You Decide 💡🏡
Debt can feel heavy.
However, the right strategy can make it easier to manage.
A debt consolidation loan lets you replace high-interest debts, like credit cards or car loans, with a lower-interest mortgage, home equity loan, or HELOC.
Yet, lower payments alone do not always mean a better plan.
As a Certified Mortgage Planning Specialist, I focus on long-term outcomes, not quick fixes.
Below are three key questions that help decide if consolidation truly works for you.
1️⃣ What’s My Total Annual Interest Cost?
Know the real price of your debt
First, list every debt you owe.
Then, multiply each balance by its interest rate.
Formula:
Interest Rate × Loan Balance = Annual Interest Cost
After that, add every result together.
This number shows how much money you lose to interest each year.
Many people are shocked by this total.
Even so, awareness is the first step toward control.
2️⃣ What’s My Blended Interest Rate Before and After?
Compare apples to apples 🍎
Next, find your blended interest rate.
This is the average rate across all debts.
Formula:
Total Annual Interest ÷ Total Debt Balance = Blended Rate
Now, compare that number to the rate on the consolidation loan.
If the new rate is meaningfully lower, savings may follow.
Still, rates alone do not tell the full story.
Terms and behavior matter just as much.
3️⃣ What Will I Do With the Extra Monthly Cash Flow?
This step decides success or failure 🚦
Lower payments often feel like a win.
Yet, stretching short-term debt over 30 years can increase total interest.
Therefore, the extra cash must be used wisely.
Options include investing, paying down principal faster, or building reserves.
Without a clear plan, consolidation can backfire.
With a plan, it can become a powerful financial tool.
Final Thought: Strategy Beats Simplicity
Debt consolidation is not good or bad by default.
Instead, it is a strategy.
When paired with purpose, it can improve your entire financial picture.
When used blindly, it can slow long-term progress.
📊 Want help running the numbers correctly?
Let’s build a plan, not just a payment.