Debt consolidation includes loans that are taken to pay off all other debts, and to reduce all outstanding amounts into one chunk of payment. This is achieved with the help of credit counseling and by devising manageable plans of action.
People are often attracted to its simplicity and the relief it offers from debts.
But the question is ― can debt consolidation help you conquer your financial troubles?
If you are considering debt consolidation as a panacea for your financial despair, review the following pros and cons of a debt consolidation loan before making a final decision.
- It Makes Managing Debt Easier
Simplicity is what often brings people to debt consolidation. Instead of managing multiple credit cards, plus a medical bill or two, or even a past due balance on another loan, all of these accounts become part of one payment or loan. It is also always easier to budget one payment than to make time and money for several with different due dates.
- Your Payment Will Likely Be Lower
If you take the loan route, the interest rate will likely be lower. This is great relief considering that many credit cards have over 20 percent interest. The term of payment is also longer, meaning a lower payment. At worse, you may only pay slightly less than you pay in combined payments. Make sure you review all your loan documents, and request the minimum
amount necessary to relieve you of your debt.The lesser amount you can finance, the quicker you can pay it off.
- However, Proceed with Discipline
People get in trouble with debt consolidation when they clear credit card accounts with debt consolidation funds only to continue using the cards.You can find yourself paying the debt consolidation payment plus the payments on credit cards once again. Once you use debt consolidation to pay off your cards, stop using them. Take advantage of this new financial freedom to grow savings and understand that credit cards are not necessary. Avoid repeating past mistakes. Debt consolidation can offer relief to consumers in debt. However, you can end up in the same mess you tried to prevent in the first place. Work on the habits that put you in the position of taking a debt consolidation. That is the only way you will enjoy long-term financial relief.