Is Debt Consolidation For You?
It would be hard to miss any of the seemingly endless advertisements touting the wonders of debt consolidation. In this article, we’ll talk about the pros and cons of taking out such loans.
What is Debt Consolidation?
The chief goal is to lower your overall interest rate as well as the monthly payment so that you can better attack your debt and pay it off more quickly. Through debt consolidation, you’ll typically take out a single loan to pay off your smaller debts. The main advantage is that you have just one single payment, hopefully making it easier for you to manage your debt.
Types of Loans for Debt Consolidation
There are a host of options for how you can consolidate your debt.
- A debt management plan. These plans normally include credit counseling and education programs to help you recognize the causes of your financial problems.
- Personal loans. Offered through banks, credit unions, online lenders, etc., the interest rates will vary but are normally fixed and somewhat lower that what is typically on credit cards.
- Home equity loans or lines of credit. While these loans come with fairly low interest rates, you’ll be putting your house up as collateral. In other words, if you fall behind in your payments, you could lose your home.
Pros of Debt Consolidation
- Ease of paying just one bill rather than multiples.
For many of us, climbing out of debt is all about organization. With debt consolidation, there’s no more need to worry about which bill should paid first or deciding how much to send to various creditors.
- Your monthly payments will be lower.
If you’re paying several bills and the belt is getting tighter and tighter, debt consolidation could be your best option since paying one bill with one (lower) interest rate will decrease your monthly outgoings.
- Lower interest rate.
If you’re paying on multiple credit cards and loans, just think about how much you’re paying in interest alone. It’s not unusual to pay hundreds or thousands in finance charges alone.
Cons of Debt Consolidation
- The risk of more debt.
Freeing up money each month can be a huge temptation to spend it, beginning the cycle once again of getting further into debt.
- You stand to lose a lot if you fall behind.
If you go with a home equity loan for your debt consolidation, you’ll constantly be worrying about missing a payment and where to live if you do.
- You may end up paying more in the long run.
While the interest rate may be lower, it’s quite possible that it will take you longer to pay back the debt in full. A good rule of thumb is to remain vigilantly organized and make more than the minimal payment on your loan.
Facing Crushing Debt? Call The Oswalt Law Group
We know that the path to getting out of debt can be a steep one. But we want you know that there are a host of options available to you. Call the Oswalt Law Group at (602) 225-2222 for a free consultation.