Friday, April 1, 2011

"Should I Consolidate My Debt?"

Each Friday, The Echo Boom Bomb will feature a common question among Echo Boomers and/or their parents concerning economics or finance concerning the Millennial generation. These questions are often asked by Echo Boomers and/or their parents that I survey or can be directed to my email at echoboombomb [at] gmail [dot] com. If you email a question, please be sure to keep it concise and direct.

Question: Should I consolidate any of the following:
$25,000 in student loans at a variable 7% APR.
$8000 motorcycle loan at a variable 19% APR.
$3000 credit cards at a variable 12% APR.

Since all three are variable APRs, I would suggest seeking options for all three. You don't want any of those open if interest rates were to go up (though, interest rates rising is unlikely). The motorcyle loan APR seems unusually high; I would also evaluate your credit and make sure that everything on it reflects accurate information.

As far as the student loans, if you stay with variable student loans, many of them are far less than 7% APR. I would suggest that you seek your fixed options first, before consolidating any loans into a variable option when dealing with student loans.

Some customers ask this question because they may have seen or heard information that debt consolidation fails to work. So if your question is about the effectiveness on debt consolidation in general, it depends on you and how you see debt consolidation.