Pros and Cons of Consumer Debt Consolidation

When you are purchasing a car, you take the time to weigh the pros and cons. For instance, if you live in an area with rough, dirt roads and cold, snowy winters, you may have to choose between four wheel drive or fuel efficiency. If you travel a lot, you may have to choose between a small, compact with no frills or a pricier hybrid. You have to weigh what you need with the drawbacks and decide which car suits you. It is the same with consumer debt consolidation. You have to weigh the pros and cons and make sure this is an option which will help you become free of debt.

There are benefits to consolidating your debt, and it can work for many people. It can help you:

• Pay one monthly payment instead of four, five, or more. This makes bill paying time much easier and less frantic. It also eliminates the risk of forgetting to pay a creditor.
• You can potentially pay less per month than you are currently. If the interest rate is low, you can very well put yourself in a better financial position.
• Your can clear credit card debt, pay off medical bills, and or finish paying for your car. Reducing your debt to one payment can be a relief from stress and anxiety.

It does work this way for about thirty percent of people. For the other seventy percent, the following is more likely:

• You will have a higher interest rate than those advertised because your credit score is not pristine. The terms and rates that are advertised are for those with great credit. If yours is less than perfect – which it likely is if you are struggling with debt – your interest rate will be higher. In some cases, it is higher than what you are currently paying.
• You may still pay less per month, but with the higher interest rates, you may extend the time it takes you to pay off the debt. For instance, if you were paying all of your bills separately, it may take you 36 months to clear them if you add no new charges. With a loan, it may take 40, or even more. With loans, time means money. Each month, you pay more in interest.
• As you pay off credit cards or other lines of revolving credit, you may not cancel accounts. Those credit cards we keep for emergencies only are tempting. When you don’t have cash on hand for a purchase, you use your credit card. You intend to pay it off in full, but something comes up. In this way, people fall back into the cycle of debt. In many cases, they end up owing even more than they did originally. And they have a loan payment to contend with now.

When you are struggling with debt, the last thing you need is to worry about adding to it. When you make the commitment to get out of debt, make sure you choose a program that will help you do it in a way that is effective and affordable for you. Learn about unsecured debt consolidation before you make any choices that could negatively impact your credit.