The Pro’s and Cons of Debt Consolidation
While debt consolidation is a financial method that is quickly growing in popularity, many people still do not know what this means. Put simply, debt consolidation is the process of combining all of one’s outstanding debts into a single repayment.
But will this actually be helpful for you?
First, take a look at the two main benefits to determine whether a debt consolidation loan would improve your financial security.
Just One Repayment
It goes without saying that having numerous accounts and debts can be somewhat stressful to manage – At the best of times. By consolidating your debts into a single loan, you will be avoiding the run around of checking that everything is where it should be. As well as making your payments easier to manage, you will no longer have to deal with numerous creditors – Just one! An additional bonus is that debt consolidation allows you to choose a loan with a fixed interest rate. This means that you will always be aware of what is happening to your money, meaning you can plan accordingly.
Alongside the possibility of lower interest rates, individuals who opt for a debt consolidation loan may also receive the added bonus of lower, regular payment amounts.
Debt consolidation can help reduce not only your interest rate, but also your fees by combining all of your existing loans and debts into one. This helps you to avoid the stress of multiple rates and fees so you can focus on paying off your debt quickly and with less hassle.
To make this article fair, we also need to consider the potential pitfalls of debt consolidation (if not managed correctly). Take a look at these couple of points:
You may INCREASE your Debt
If you aren’t vigilant with your finances, you run the risk of accruing even more debt. Whilst most lenders will encourage you not to apply for further credit while repaying a debt consolidation loan, this decision ultimately comes down to the borrower.
If you find yourself seeking more credit and are approved to do so, be very mindful of your repayments and make sure you plan, plan, plan your financial commitments in advance.
Your Debt may last Longer
For many, a lower repayment and decreased interest rate will be highly appealing. However, it’s important to note that these “sneaky” tactics that draw people in are often the reason that people struggle with debt for longer than anticipated.
Where possible, make an effort to submit additional payments when you can afford it. By paying your loan off as early as possible, you will be reducing the overall amount of interest needing to be paid. This is an effective approach that is often overlooked when people feel “comfortable” within their loan terms and conditions as they think they are getting a fantastic deal, when really they could still be helping themselves.
To help you make a final decision on whether a debt consolidation loan will be of benefit to you, take the time to think about the pro’s and con’s equally. If it seems too good to be true, it likely is.
Be sure to consider your own circumstances before making a decision – Don’t just listen to others. Seek professional financial advice when needed and never be afraid to ask questions.
If you have any further queries about debt consolidation or you would like to discuss your options in the matter, please feel free to contact Boss Money for expert advice and leading knowledge.