People often struggle with debt. And there can be a few things people can do to solve their debt problems. One of which is debt consolidation.
Debt consolidation is essentially a form of debt refinancing in which you take out one big loan to pay off multiple smaller ones. Sometimes, debt consolidation can be ideal for you. However, there are also instances in which it would not make sense. To know whether debt consolidation is the ideal choice for you, it’s best to examine both the pros and cons.
Pros of Debt Consolidation
1. Eases the Stress of Debt
For many people, one of the biggest advantages of debt consolidation is simply to rid themselves of the burden of dealing with multiple loans. The stress of having multiple loans can be overwhelming. Having just one loan can simplify the process, allow you to breathe a little easier, and help you save money.
2. Allows You to Refinance Your Loans
Another advantage of debt consolidation is that it allows you to refinance your loans. If you have a number of loans with high interest rates, you would be able to get one loan with a much lower interest rate. This can help you save money on interest payments over time.
3. Improves Your Credit Score
Another advantage of debt consolidation is that it improves your credit score. Having a number of outstanding loans can negatively impact your score. But when you consolidate your loans, you only have one loan and one delinquency. This simplifies your credit history and helps increase your credit score.
Cons of Debt Consolidation
1. Pay More Interest Over Time
One major con of consolidating debt is that it can actually end up costing you more money in the long run. If you have high-interest loans and consolidate them into one with a lower interest rate, you could be paying more over time than you would have had you just paid off your loans in full.
2. May Have to Borrow More Money
Another con of debt consolidation is it can actually force you to borrow more money. The balance you owed on your original loans is usually greater than the value of the loan you would take out for consolidation. So, you would have to borrow more money to complete the transaction. This can create more debt in the long run.
3. May Come with Additional Fees
Yet another downside of debt consolidation is that it can come with additional fees. Debt consolidation can be quite costly in terms of interest. So, you might not be able to borrow as much money as you need to pay off all of your debt. Plus, a number of debt consolidation companies charge application fees and service fees that can cause you to pay more than you need to pay.
Debt consolidation can be a useful tool to help you deal with debt. But before you do, you need to ensure that it’s the right choice for you. Discover how to get a debt consolidation loan before making your decision.
We will be happy to give you a free, no-obligation quote for your new debt consolidation loan requirements. Get in touch with us today!