There’s nothing quite as stressful as managing your cash when you have debt. One payment is often enough to manage. However, if you have multiple debts it can be completely overwhelming. Many people turn to debt consolidation loans to help them manage their monthly cash flow. This can be a great idea. However, it does have some significant drawbacks as well.
The Pros of Consolidating Your Debts
It should be noted that there are different ways to consolidate your debt. You can use a debt consolidation service or you can apply for a debt consolidation loan. You can also use a home equity loan to consolidate your debt.
Regardless of the method you choose to consolidate your debt, pooling all of your debts into one monthly payment can make it much easier to manage your cash flow. Instead of tracking five to ten different bills, and risking late fees, you only have to manage one bill.
You may also pay significantly less in interest. This is often the case if you’re consolidating credit card debt, which often has very high interest rates.
Your monthly payments, if you use a debt consolidation service, will likely be much less than they were when you were paying each debt individually.
Additionally, if you’re using a debt consolidation service, you no longer have to deal with creditors. Your debt consolidation representatives manage communications.
Finally, being able to cut up those credit cards and only have to deal with one lender can be incredibly freeing. You may once again feel in control of your finances.
The Cons of Consolidating Your Debts
Debt consolidation doesn’t mean the credit cards automatically disappear. If you are still using your credit cards, you may wind up in deeper trouble. Racking up credit card debt and paying off a debt consolidation loan is a common occurrence.
Debt consolidation companies charge fees, and not all of them are reputable. You’re putting your financial reputation in their hands. Make sure to always check the reputation of a debt consolidation service before you agree to anything.
It may take longer to pay off the loan. If you’re paying off five different accounts, you can focus on paying off one at a time. Pay the minimum balance on the remaining accounts and you may see your debts slowly disappear. However, if you pool them all into one large loan, it can take quite a while to pay it all off.
Consolidating your debt can make sense for many. However, before you sign on the dotted line, make sure you know what you’re getting into. Make sure you can make the payments. Have confidence in your ability to not incur any more debt. Protect yourself and your finances.