Many people who are in debt often turn to debt consolidation for a viable way to get out of it. While I don’t have concrete information, I am starting to think that many people consider this because it is the popular thing to do. Whether that is because they know someone else that has used consolidation to get out of debt or whether it is advertisements by debt consolidation that are persuading desperate people. Regardless of the reason, people are considering it. I thought I would talk about it more in detail, so that I can expose more of the pros and cons of debt consolidation.
Pros of Debt Consolidation
There are three major benefits of debt consolidation that may be quite obvious. The first and foremost is the lower payment option. By consolidating all of your different loans into one, you are able to decrease the money you owe each month. This gives you more money to put towards savings goals or investments. The second benefit of debt consolidation is the primary reason that you are able to accomplish the first. That is, the lower interest rate. Many people struggle with debt because of the high interest rates. Last but certainly not least, debt consolidation offers the benefit of simplicity. Instead of having to worry about a lot of different payments and their corresponding due dates, having one payment to make each month is a lot more simple. Sometimes, simplicity makes a huge difference in your finances, especially those who have struggled with their finances in the past.
Cons of Debt Consolidation
While there are three major pros to debt consolidation, I don’t mean to suggest that you should automatically jump on the bandwagon. In fact, there is one major draw back to using debt consolidation. That is, that the monthly payment on your debt never decreases. Whereas in a normal situation, you’d normally have multiple loans that end at different times. Once the first one is paid off, you’d have more money to throw at the other debt or have a significantly lower payment for the rest of the remaining loan terms.
While debt consolidation may be more manageable, it doesn’t mean that it is the absolute best option for those considering it. Make sure to consider whether you can get by without it and how that might affect the long term payment plan. Whatever you do, don’t just look at the monthly payment and think it’s all good things.