The main reason why a consumer may seek out debt consolidation is to make paying off debts easier. Debt consolidation is usually the process by which several separate loans are paid off by taking one additional single loan.
Pros of Debt Consolidation
If you have managed to run up balance on various credit cards during college or have several high interest instalment loans such as student loans, car loans and credit cards then you may wish to consider debt consolidation. Debt consolidation brings about the ease of making a single payment every month to pay off all your debts along due to avoid late fees, extra charges and the bad credit rating that could inevitably result when he don’t pay your bills regularly. When you take out a debt consolidation loans all your standing there get paid off instantly and you are only required to make the payment on the new single loan. Although the total amount of debt may not get reduced over the tenure of the debt consolidation loans your monthly payment can reduce substantially.
Cons of Debt Consolidation
As mentioned before the intent of consolidating their debts is to not only reduce the number of payments to be made every month but to also lower the monthly amount. If your credit rating is suffering you may find it difficult to get another loan for the purpose of consolidating your debts at a lower interest rate. If you cannot consolidate your debts with a loan at a lower rate of interest than there is really no point. It is common for the lender to ask for the security of an asset such as an equity line on your home as collateral before extending a debt consolidation loans. Putting your home, life insurance policy, retirement fund sector for the purpose of paying unsecured debts such as credit cards is a risky proposition unless you are completely sure of completing the payments on your debt consolidation loans.
Although the monthly payments might get reduced many consolidate your debts you may end up paying the same or even more than what you are originally owed since the duration of the loan is longer. You need to balance this aspect along with the advantage that comes with lower monthly payments.
Should You Consolidate Your Debt?
The answer to this question will probably vary from one consumer to the other. It really depends on your financial situation. It is true that some people debt consolidation might be the only solution and helped to preserve a semblance of a credit rating without taking other dire measures like bankruptcy. Consolidating your debt will help you save money on a monthly basis. This may be crucial to some people to stay financially afloat and to get their finances back in order. It is possible for you to use the dealing space that a debt consolidation will bring about in order to get back up on your feet and then attack the debt consolidation loans more aggressively.
In order to decide whether consolidating your debt is the option to you or other options are open to your view should contact financial professional who could help you by evaluating your financial situation carefully.