Debt Consolidation: The Pros and Cons

Mountains of credit card debt and high-interest rates on loans and can lead to financial troubles. Debt consolidation is a great way to combine all your debts into a single loan, thus making it easier for you to manage your payments. Read on to know the pros and cons of debt consolidation and how it could work for you.

Advantages of Debt Consolidation

Repaying debt sooner: Debt consolidation allows you to combine all your debts and pay off the loan amount faster (provided you opt for a short loan term).

Easy to track finances: Keeping a record of your monthly dues is simplified with debt consolidation as you only have to keep track of a single fixed monthly payment.

Low-interest rates: If you have good credit, you could benefit from a consolidated loan as these often offer lower interest rates.

Steady repayment schedules: Instead of open-ended payment plans, you’ll only pay a fixed amount over a specific number of years with a consolidated loan.

Improves your credit score: With a fixed repayment schedule, most borrowers tend to make on-time payments that can help boost the credit score.

The Dark Side of Debt Consolidation

It doesn’t fix bad financial habits: While a debt consolidation loan can help you regain control of your debt, it won’t keep you from making bad financial decisions in the future.

They often include additional fees: While these loans can help you manage your debts, you should brace yourself for fees associated with these loans. These could include:

Balance transfer fees

Annual fees

Closing fees

Late payment fees

Early cancellation fees

Low interest isn’t guaranteed: Lenders set interest rates based on many factors, including your credit score, the term of the loan, and the loan amount. If you have a poor credit score or decide to extend the loan tenure, you could end up shelling out more in interest.

Now that you’re in the know, weighing the pros and cons can help you decide if debt consolidation is the best financial path forward. Along with a disciplined approach to finances, a well-researched debt consolidation loan could help get you out of crippling debt and stay that way for years to come.