Looking at debt consolidation pros and cons can help you figure out if debt consolidation is a good option for your goals.
What is debt consolidation? Basically, a debt consolidation loan is a type of loan into which multiple loans have been combined into one new loan. You can accomplish this by transferring multiple credit card debts to one credit card with a lower interest rate, taking out a home equity loan or a home equity line of credit, tapping into your retirement or taking out a consolidation loan.
Debt Consolidation Cons
- It’s not a magical solution. Consolidation may not save you money or lower your monthly payment.
- You may have to pay exit fees to get out of existing loans. (Check with your current lenders.)
- It may cost more. If the length of time to pay o˜ the debt is extended, you’ll spend more money in interest over a longer period of time in order to pay o˜ the debts.
- Savings may be temporary. In the case of credit card balance transfers, the lower interest rate may last for only 12-18 months.
Debt Consolidation Pros
- If you have high interest rates on a credit card or installment loan, consolidating to a lower rate will help to save you money.
- Consolidating into one monthly payment will make bill paying much easier and more convenient (and may even help you eliminate late fees).
- If you have been struggling to make your monthly payments, consolidating may be a great way to reduce your monthly payments with your lower rate.
Remember that debt consolidation doesn’t get you out of debt. You still have to pay what you owe. Your main goal should be changing the behaviors that got you into debt in the first place. Debt consolidation along with some budget work could be a good way to get you on the right path. Talk to us today to learn more!