Liz Weston

Dear Liz: I have about $40,000 in credit card debt and am considering a consolidation loan. I’m current with my cards. My income is about $130,000 per year. Can you recommend a lender? Any cautions?

Answer: As you probably know, this is a bad time to be burdened with a lot of debt. But taking out another loan may not be the answer.

Personal loans — the type of unsecured loan often used to consolidate other debt — work out best when you can lower the rate on your debt, get it paid off within three to five years and avoid accruing more debt while you do so.

Unfortunately, people who take out consolidation loans often don’t, or can’t, fix the problem that caused the debt in the first place. If the debt came from overspending, for example, they don’t trim their expenses to match their income and wind up borrowing more. If the debt is from medical bills, ill health may cause them to incur more medical-related debt.

Another issue is interest rates. Personal loans typically have fixed rates, which is good, along with fixed payments so you actually pay off the debt over time. That’s in sharp contrast to credit cards, which usually have variable rates and minimum payments that don’t pay down much of your principal.

Unless your credit is good and your income secure, though, you may wind up paying a higher rate than you are now — assuming you can get a personal loan at all. Lenders have tightened their standards considerably in recent weeks because of the current and expected economic fallout from the pandemic.

Many people are better off paying down their debt on their own, making extra payments to get their highest-rate card paid off first, and then moving to the next-highest-rate card, while paying minimums on the rest. (Another approach is to pay the smallest balance first, to give yourself a psychological win that can motivate you to keep going.)

If you can’t pay more than the minimums, then you’re likely in too much debt to dig your way out on your own. Consider making appointments with a credit counselor affiliated with the National Foundation for Credit Counseling and with a bankruptcy attorney (the National Assn. of Consumer Bankruptcy Attorneys offers referrals) so you can better understand your options.