If you are slogging through harrowing debts and looking for ways to get rid of your outstanding balances then debt settlement can be a workable solution. However, this will leave a blemish on your credit report. In such cases debt consolidation might be your ideal debt solution. If you are hesitant to opt for debt consolidation services and are wondering how it would help you to deal with your debt problem, read the rest of the article.
What is Debt Consolidation?
Debt consolidation refers to the debt relief practice which is used to pay off the debtor’s often high debts to numerous creditors by entering into a new loan with another single creditor. Debt consolidation replaces multiple loans with just one loan, which offers a lower monthly payment and a longer repayment plan. Debt consolidation concentrates all outstanding debts into the one loan and you need not worry about several payments to multiple creditors on several due dates any more. There are a number of good reasons for consumers to consider debt consolidation as a viable option, and it offers many benefits that aren’t commonly understood.
How Does Debt Consolidation lend a hand to help?
There are four primary ways through which debt consolidation helps a consumer. First, as most of the debt consolidation loans are secured loans and involves collateral, they offer much lower interest rates in comparison to your current debts like credit card debts. This indicates that with debt consolidation, your monthly payments get reduced considerably and you are left with more disposable income to pay off the principal amount instead of paying money on interest only. Second, debt consolidation simplifies your debt payment procedure by condensing different bills into one single bill. Writing one check is always easier than writing multiple ones to multiple creditors. If you use a home equity loan as the consolidation loan, you can avail some benefits of tax deductions as well that comes from paying interest on a mortgage. Last but not the least; debt consolidation can help a consumer who owes money on variable interest rates to switch from higher interest rates to a much lower and fixed rate of interest.
Is there any Downside of Debt Consolidation?
Just like any other debt solution, debt consolidation has potential downsides as well. One of the most common con of debt consolidation plans is the charges on upfront fees from the consumers which can be quite high. For a debt ridden consumer who is already struggling with his finances, it is difficult to bear these additional costs. Likewise, for people who are already in financial difficulty it is not always a great idea to turn their unsecured loans like credit card debt, and college loans into consolidation loans which are secured against the consumer’s property. In case you default on your payments of secured loans, the creditor is permitted to take away the collateral agreed upon in the terms of the loan. Therefore, it is not always a wise idea to run the risk of losing your home in order to consolidate your debts. As debt consolidation intends to lower your monthly payment it stretches the repayment period quite a bit longer and if you don’t use the extra monthly savings to pay off your loan it could take you much longer to get out of debt. In addition, though the amount of monthly payments and interest rate gets lower, with debt consolidation’s long repayment plan you end up paying a lot more in the long run.
So, the bottom line is, though debt consolidation has certain pitfalls, its pros can outweigh the cons. Therefore, before the situation gets really dicey and your debt crisis exceeds all its limits, consider opting for a debt consolidation program to heal your debt woes.