Whether you are on the verge of bankruptcy or attempting to better manage your finances, you may be wondering if debt consolidation can benefit you. Debt consolidation is the combination of several unsecured debts (e.g. credit cards, medical bills, payday loans, etc.) into one monthly bill—with the goal of lowering the interest rate and the monthly payment while paying off debt quicker.
Before deciding that debt consolidation is right for you, ensure you know both the pros and cons. The information below can help you understand the advantages and disadvantages of debt consolidation.
The Pros of Debt Consolidation
The following are the upsides of consolidating debt:
- A single payment means less stress each month. When you owe debt to several creditors, not only do you have to worry about paying each of them back, but also keeping track of all the different payments that you owe. Losing track or missing payments can harm creditor score and financial health. With a single monthly payment due to debt consolidation, these types of stressful situations and negative consequences are avoidable.
- The interest rate applied to your debts is lower. Whenif (REMOVE IF) you have a lot of debt that is spread across several loans and/or credit cards, you may be paying a substantial amount of money in finance charges such as interest. When you lump together your debt, you are going to pay interest on one loan that is typically associated with a lower rate.
- You can pay off your debt faster. Since the interest rate is lower, each payment you make can help reduce your debt instead of getting drained away on added interest charges. As a result, you can pay off your debt within a few years or less, rather than taking decades on a minimum payment schedule.
The Cons of Debt Consolidation
Of course, sometimes debt consolidation may not be the proper solution. If it were, then every person who had a substantial amount of debt would do so immediately. Debt consolidation also has its fair share of cons.
The following are the common cons of debt consolidation:
- You can increase your debt. Since you will be freeing up money, there will be more to spend. Although smart consumers either save this money or put extra towards their debt, there are many who use “leftover” money to get into even further debt, starting the vicious cycle over again.
- If your payment plan fails, you will be back to where you began or worse. When you’ve consolidated your debt, you must remain committed to the payment plan and ensure to make all payments on time. Otherwise, you risk harming your credit score and face additional penalties.
If you are considering debt consolidation, contact our Brevard County foreclosure lawyer at The Buchalter Law Group to understand the advantages and disadvantages today.