For people who have several debts, a debt consolidation loan might seem to be a suitable solution. Some financial experts might recommend it while others might not. But at the end of the day, the decision is entirely yours. If you are considering taking a debt consolidation loan, you should weigh the pros and cons and ascertain if it is ideal for you.
What is Debt Consolidation?
Before we get to the pros and cons, it is best if you understand what a debt consolidation loan is. And the impact it can have on the borrower.
It is the process of merging all your debts into one repayment. A debt consolidation loan can enable you to pay off all your debts at once and leave you with a single repayment. In some cases, the lender of the consolidated debt may agree to clear all debts on your behalf and leave you with one.
For you to qualify for a consolidated debt, you need to meet the criteria of a lender. They may ask for your financial details, take you through a credit check and then get approval. Before applying for a consolidated loan, you should check your credit report earlier in advance.
- One Single Repayment
No matter how organised you are, paying off several debts at once can be very stressful. This is one of the main benefits of debt consolidation. Since you will have reduced all your payments into a single one, it will be easier for you to track and manage it.
Additionally, getting a consolidated debt at a fixed interest will keep you informed of your finances, allowing you to plan and execute an effective debt repayment strategy. It will also relieve you from the stress of dealing with several creditors with varying terms.
- Low-Interest Rate
Although the balance of your debts will remain the same when you consolidate it, you could benefit from a lower interest rate. This is because over time you will save money. Also, consolidating debts can help pay off faster debts with high-interest rates.
- Lower Repayments
Not unless you want to pay off the loan sooner if you are okay with your financial situation. Consolidating debt can lower your monthly repayments. This will help you achieve financial stability. During the application for debt consolidation, don’t forget to ask the lender if it is possible to make additional payments and if doing so attracts any charges.
- You Could Accrue More Debt
It is advisable not take any more loans when you are paying off a consolidated debt. However, this decision entirely depends on the borrower. If you take another loan, you could end up accruing more debt.
- You could be in Debt for Longer
Taking a consolidated loan could put you in debt for longer, especially if you opt for a lower monthly payment. This can happen, especially if you receive a low interest consolidated debt.
Deciding on Debt Consolidation
Consolidating your debt does have its pros and cons as you can see above. Before you decide, weigh out the pros and cons and determine if it is the right strategy to follow, or if you should consider debt settlement. Don’t forget to make personal considerations and seek advice from finance experts.