Juggling multiple debts can be very stressful. And even though you owe money from several different creditors, it doesn’t automatically mean that taking out a debt consolidation loan is the solution. To help you decide on this, here are the advantages and disadvantages to consider.
Debt consolidation allows you to step back and have some much-needed break. By combining multiple payments into one, it will be easier to manage your finances and effectively strategize how to write off all debts eventually.
Taking out a debt consolidation loan can also aid in saving lots of money whether in short or in the long term. Banks, credits unions, and other financial institutions often offer lower interest rates for debt consolidation. So you probably would be paying a lower monthly due than multiple minimum payments.
Additionally, depending on the total amount of debt to be consolidated, term of the loan and other related factors, a much lenient interest rate may be offered. In the long run, you save more money while paying a much more affordable monthly due.
Lastly, debt consolidation helps you see that financial management and getting out of debt can be easily achieved. Paying multiple minimum payments may feel like there’s no progress at all. With debt consolidation, you have one clear path to take in elimination all debts.
An approved debt consolidation loan means a healthy credit history. If you have an otherwise bad one, perhaps a different type of loan is what you need. Potential creditors look into a debtor’s credit score in determining the risk of lending money. If there’s something that they don’t like, your application for a loan will be rejected.
Some borrowers think that a debt consolidation loan writes off a debt. It has to be clear that taking out one doesn’t get rid of them, at least not in an instant. A debt consolidation loan, when appropriately utilized, helps you deal with debts easier. Should you fail to take proper charge of your finances, you might end up exactly in the same position.