How much have you heard about debt consolidation? Do you have a lot of debt and unable to pay? You might be thinking about debt consolidation. Before you go with debt consolidation, you must remember that it has some advantages and also disadvantages too. Many peoples think about it that it is right to move to get rid of debt, but once you come to know about some potential drawbacks, you might want to change your decision.
Pros & Cons of Debt Consolidation
Pros of Debt Consolidation
There is some good thing that forces you to go ahead with debt consolidation. Some of them are below that are the advantage of it.
Combine multiple payments into single
When you are consolidating your existing debt, you are paying multiple payments together. So you don’t have to worry about whom to pay first and whom to pay after. You are spending all of them at once.
Lower Interest rate
Have you ever thought how much amount you are paying as an interest each month? E.g., Credit card bills, your home loan, care loan many more? Counting all of their interest together will be hundreds of dollars and even thousands of dollars as finance charges. When you combine all of them, you need to pay only the interest on one loan which you can have at the lowest rate. So you will be saving yourself a lot of money regarding interest for all other loans and bills.
Lower Monthly payment
You might be paying your debt month after month and still not getting out of your debt. However, debt consolidation loan helps you to get rid of it and lowering your monthly payments much possible. You will have to pay only one payment and one interest which is lower, your monthly spending on payment will be less than regular.
Cons of Debt Consolidation
The potential for more debt
Since you are paying all your debt together, your monthly spending on paying will be less. So you will have more money to spend. Some people's use this money in buying some unusual stuff while some smart consumers will save money to pay a debt. However more people's use that money for their usage, and such peoples find their self again in debt again.
Spending more in long run
Even If the interest rate is lower, your loan tenure might be more, and it takes a longer period to pay back your loan. So that the amount you are paying for a longer run will be higher. So you need to manage your incoming money and stay organized to pay your debt as quickly as you can.
It could ruin your credit
Some debt consolidation companies claim to be debt settlement negotiators. They know that you are paying them lump sum amount, what they do is hold your money intentionally. They don’t spend your money to your lender, they try to settle your payment at lowest rate as possible, but the thing is that your payment is still not paid to your lender. So your credit history will be ruined by this and credit score too.
We hope pros and cons about debt consolidation have helped you. If you think we have missed some important point that needs to be added in the article to make it more useful, feel free to suggest us in the comments below.
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