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Pros and Cons of Debt Consolidation – The Truth Will Surprise You

The Pros and Cons of Debt Consolidation Getting a debt consolidation loan creates an interesting picture. It is no secret that many people have benefited from these types of loans; however, it is also true that there are a number of people who did not benefit and hurt their debt position. The challenge is trying to figure out if this type of loan will work for you. Here, we take a look at the pros and cons so you can decide for yourself:

Pros

1. Consolidate all your debts into one monthly payment.

This is advantageous because it helps make it much easier to keep track of one payment rather than several different ones. Also, the once-a-month due date makes it easier for planning purposes to help raise money to be sent before that due date rather than having to meet several different due dates in a month.

2. Deal with only one creditor.

As in point n. # 1, reducing your bill to one creditor makes it easier for you to deal with them. Many times, taking out a debt consolidation loan will help reduce collection phone calls and other collection tactics as you try to settle with the single creditor.

3. Get potentially lower interest rates or a lower monthly payment.

Perhaps the most significant advantage of obtaining a debt consolidation loan is that you can get a lower monthly payment and sometimes lower interest rates as well. This can make it much easier to continually make payments month after month and give you the opportunity to save extra money each month.

4. Save more money that can be used for investments or immediate emergencies.

Many smart people have been able to use the extra savings each month with the lowest interest payment and have put it to use in small investments in their home or other businesses to help make more money. This money can be used to help pay off or pay off the debt, creating an opportunity to pay off the loan earlier.

5. Students on the fast track can benefit from consolidation loans.

Young adults who are likely to increase their income significantly in a few years can benefit by paying less when they are short on cash and then repaying the loan more easily when they have reached much higher salary ranges. This can be very useful for those who run up a lot of debt to help pay for law school or medical school, for example.

Cons

1. Potentially increase the duration of the loan payment.

In many cases, the lowest interest rate or the lowest monthly payment is possible by extending the life of the loan on the backend. This can be frustrating for many people who are faced with the prospect of not being able to pay their debt early.

2. Increase your chances of paying more interest over the life of the loan.

Like n. 1, as the life of the loan is extended, the actual amount of interest that could end up being paid can increase significantly. This should be something to consider when considering how that extra money could be used for other things like college, medical expenses, or other needs.

3. Consolidation does not solve bad credit habits.

Many people mistakenly believe that debt consolidation provides a panacea for their credit card debt problems. However, all it really does is provide a way in which you can pay off debt more effectively. If people choose to keep making poor credit card payment decisions, they can sink deeper and deeper into more credit card debt. In cases where this gets out of hand, collateral like a home or car can even be taken in the event of a default on secured debt consolidation loans.

As you can see the pros and cons of debt consolidation It will vary in its importance and value to each person. For this reason, it is a good idea to review each of these and try to rate each one as to its importance to your situation. After doing so, you should have a pretty good idea of ​​whether this type of loan is right for you.

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