Debt Consolidation Pros and Cons: A Brief Study

Many people are buried under debts because repaying credit card balance, mortgages, consumer loans, and car loans quickly is quite difficult. Paying merely the minimum amount is not the solution to your debts. Hence, many people turn toward debt consolidation companies to get rid of their debts.

You will find debt consolidation loan ads everywhere: on the radio, television, your mailbox and also your inbox. It seems like these people are just waiting to help you to solve all your financial problems.

However, it’s very important to know debt consolidation pros and cons before you seek help from such companies. It’s not necessary what worked for your friend might work for you.

Pros

One payment instead of many payments
A recent study says, an average US citizen pays around 11 different creditors each month. However, when you seek help from debt consolidation companies, you have to bother about just one payment. Also, you don’t have to answer calls for many creditors, nor do you have to go many places if there is an issue. Managing debts and payments become easier.

Lower interest rates
Among all the possible options, home equity loan is the most common debt consolidation loan. It is also known as second mortgage. Here, the interest rate is quite lower than any other loan home providers. This is because mortgage is a secured loan. If you are unable to repay the amount, they can take away your home. However, in case of credit card debts, they don’t have any security. Hence, the interest rate charged for credit card debt consolidation is quite higher.

Reduced monthly repayment amount
Due to lowered interest rates, you have to repay a lower amount. This means you have to pay less every month. This helps an individual to get rid of his/her debts very quickly.

Tax Benefit
Paying interest to a credit card company doesn’t help you. However, interest paid for your mortgage can help you to save tax payment.

Wow! There are many benefits of getting debt consolidation loan. However, let’s have a look at the second part of Debt consolidation pros and cons.

Cons

Encourages more debt
A debt consolidation loan helps to repay your debts. Hence, at the end of the month, you have more available credit card balance. So, it’s very easy to start spending again. Stress makes you spend less. However, debt consolidation relieves you from your stress, making you quite vulnerable to your old habits.

Long-term debt
Getting a second mortgage is definitely helpful. However, you have done nothing but switched your creditor. Also, most of these home loans’ term varies from 10 to 30 years. You keep repaying your debt for the rest of your life,

Actually you spend more
If you are going for a 30 year mortgage, which is generally the case, you will spend more than what you would have for the first loan.

You can lose your shirt as well
Credit card debt consolidation is quite safe. However, if you don’t repay your second mortgage, you can lose you home.

Hence, before you decide anything, it is important to examine debt consolidation pros and cons quite thoroughly. You don’t want to lose your shirt, do you?