What Are The Pros and Cons of Debt Consolidation?
If numerous consumer creditors are after you each month to pay overdue bills, debt consolidation is one of several viable options that can help you gain control over your finances and move toward a debt-free future. Take time to understand the pros and cons associated with consolidating debt.
Once you have educated yourself on the variety of options including programs that do not require additional loans, you can make an informed decision as to whether consolidation and settlement is the best way to proceed with paying off significant consumer debt in a reasonable period of time.
Pros to Debt Consolidation
1. An End to Bill Collector Harassment
When you enroll in a debt consolidation program, you gain the benefit of an immediate “cease fire” from collection agents. The embarrassing phone calls and letters will stop, and the stress of hiding out from bill collectors will melt away.
2. Streamlined Bill Pay
Consolidating debt allows you to restructure your repayment to numerous creditors, so you pay only a single monthly installment directly to your consolidation company. With only one bill to pay a month, you never need to worry about making minimum payments to multiple companies. You are also relieved of the responsibility to remember several “due dates” every month. Simply pay one bill a month, and enjoy freedom from worry over accruing late charges for missed or late payments.
3. Credit Rebuilding
If you are falling behind on several credit payments per month, chances are high that your credit rating is plummeting. While consolidation causes an initial ding on your credit report, all of the negative monthly reporting activity from missed payments stops immediately when you enroll in a credit relief program.
Every time you make your single monthly payment to your consolidation agency on time, this positive activity is reported to major credit bureaus, and your overall credit rating begins to improve.
4. Ongoing Education
A good debt consolidation company will not only provide you with a loan to pay off your creditors, but they should also give you access to information that will enable you to be more responsible with your finances in the future.
Learn how to create a budget, set financial goals for the future, and create an emergency fund with the help of your credit relief agency. The wraparound support provided by a top-notch consolidation company ensures that you never need to find yourself in an oppressive debt situation again.
Cons of Debt Consolidation
1. Temptation to Extend Loan Terms
A debt consolidation agency typically offers you a lower combined interest rate than you were paying on your numerous credit accounts. They generally also allow you to reset your loan terms to fit in with your current budget.
The major temptation here is to choose an extended loan term that allows you to pay very little out-of-pocket each month to your consolidation company. The problem is that the less aggressively you pay off your consolidation loan, the more total money you can expect to pay in interest long-term.
Be sure to repay your consolidation loan in a short-term a manner as possible, so you can pay it off quickly and avoid interest accrual every month.
2. Better Options May Exist
Some credit card companies allow you to transfer several different credit card balances to a single new credit provider offering a zero percent interest rate as a special promotion. This arrangement allows you to consolidate your debt without paying any interest whatsoever.
You may also be able to take out a low-interest loan on owned property, which may afford you the opportunity to consolidate your loan through your established bank instead of entering into a deal with a new agency.
Make sure your prospective consolidation loan company really is providing you with the lowest cost solution to your debt problems before you sign on the dotted line.
3. Sharks in the Water
While there are many stellar credit relief agencies on the market, there are also a lot of fraudulent consolidation companies out there trying to take you for all you’re worth. There is a risk factor involved with enrolling in a consolidation company without doing your homework on the company first.
Check out reports from watchdog agencies like the Better Business Bureau, read impartial reviews about your prospective consolidation company on financial website forums, and ask your trusted associates for referrals to debt relief programs you can trust.
Consolidating debt may be just the solution you need to regain control over your troubled or erratic finances. Take time to consider both the pros and cons of credit relief programs before you enroll. If debt consolidation seems like the right solution for you, take your time and search out a company that is ready to provide exceptional services for an affordable price.
Debt consolidation is not a magic debt cure for credit problems, but it is a solid means of repaying what you owe without straining your budget every month.