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No one likes to be in debt, but to a certain degree, it’s necessary. Mortgages, car loans, and student loans are all debt that benefit you in some way. But sometimes you end up with more debt than you can handle. Credit cards, personal loans, payday loans, and other forms of debt can have you drowning in debt that you’re not sure you can pay off. At this point, many start to consider debt consolidation to help them get back on solid ground. Before you make a decision, consider these pros and cons that you should know about when you’re considering debt consolidation.
Pro: You Can Repay Debts Sooner
For many people, credit card balances are a huge chunk of their debt. And there’s no set deadline to pay off a credit card balance. In fact, credit card companies bank on you making only the minimum payments because they profit greatly from interest payments. With debt consolidation, though, you’ll be given a fixed payment and a deadline by which to finish paying off your debt. This leads to paying off your debt sooner and paying less interest on your debt. Plus, you can then put that money toward new goals.
Additionally, some people find themselves taking out personal student loans for their child’s tuition as well. In these cases, companies offer parent plus loan rates that can be refinanced as needed to guarantee the lowest rates possible.
Con: You Might Be Tempted to Rack Up New Debt
Consolidating your debt wipes it clean at the source. This means that you might end up with a stack of zero-balance credit cards calling your name. However, if you give in to temptation, you’ll start racking up new debt that will not only put you right back where you were but may actually put you even further in debt. Some people close out accounts to prevent this, but that can hurt your credit as much as your debt can. If you don’t trust yourself to avoid temptation, you may need to consider cutting up, freezing, or giving your credit cards to someone else to hold for you to avoid temptation.
Pro: Your Debt May Be Easier to Manage
You may be making a dozen payments throughout each month to pay your debts to various companies or banks. This can be difficult to keep track of, and you may end up missing a payment without realizing it. Alternatively, you could instead make one payment on the same day every month. Which sounds easier to handle? One payment each month makes your debt much easier to manage. You’re much less likely to forget or overlook a payment or mix up your payment dates. This reduces your stress and can reduce your debt by not adding on additional interest and late fees because of mistakes.
Con: Fees May Add to Your Expenses
Debt consolidation typically means working with an agency, attorney, or counselor of some sort. And that means fees. Those fees are going to add to your expenses. If you’re already in significant debt, these fees might stretch your budget more than you’re comfortable with. However, many times, the debt consolidation process includes negotiating lower payments and even a lower amount to be paid back overall. This may offset the fees that you’ll be charged but even if it doesn’t, the fees might be worth it to get your debt under control.
Debt consolidation is a valid method for getting your debt under control and paid off. But like the debt that got you here in the first place, it’s important to consider all aspects of it before you decide to move forward with it. Having a plan to deal with the cons and knowing how the pros can help you will allow you to use debt consolidation as a step up and avoid needing to use it again in the future.
By Anita Ginsburg
who is a freelance writer and residing in Denver, CO. She studied at Colorado State University, and now writes articles about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn’t writing. If you’re considering debt consolidation, she recommends talking to an advisor like those at Brian R. Cahn & Associates, LLC.