Debt consolidation loans sound like a great idea. After all, you get to reduce all your personal loans into one big loan. Your credit report shows that you have paid off all you previous loans and only have one loan out. Additionally, your revolving credit is paid off and that raises your limit on the cards. But, is it all it’s cracked up to be? Find out the pros and cons of debt consolidations loans to find out if it is right for you.
Pros of Debt Consolidation
- All your personal loans, credit card loans, and unsecured loans are all paid off.
- You only have one loan payment to make each month.
- In many cases, you can get a lower interest rate for the personal loan.
- With a lower payment, you can pay the same amount as before and pay off the debt faster.
- Your credit score reflects loans paid in full.
- With one payment, you can easily prevent late fees, overdraft fees, and forgotten or misplaced bills.
- A lower payment means you don’t have to miss payments in tough times.
Cons of Debt Consolidation
- Without careful money management, you can easily get back into the same situation of maxed out cards and late fees. The big difference is that not only are all your cards maxed out but you also have a debt consolidation loan to pay off as well.
- Your credit cards may increase your credit limit on your cards making it more tempting to splurge on something you cannot afford.
- Not all consolidation loans lead to a lower interest payment. Sometimes, it is better to keep the rates you have instead of consolidating.
- Missing a payment can cause big fees and skyrocketing interest rates.
- One payment means a larger onetime payment that may be more difficult to make than smaller payments throughout the month.
Is Debt Consolidation Right for You?
With all the commercials and all the hype, it is tempting to think that debt consolidation is a quick fix to all your personal loans. However, they are not for everyone. Sitting down with your bills and figuring out the rates you pay and the rates you would pay with a consolidation loan is the only way to know for sure. Trained professionals can help you with the process. However, you do want to make sure they are unbiased parties. Unfortunately, some places are not there to help you make the best personal decision. They are only there to sell you a loan and make a profit.