The Pros And Cons Of Debt Consolidation

Debt consolidation, involves taking out a new loan to pay off multiple debts or credit card balances.  

The Pro  

Debt consolidation companies argue that borrowing money at a low interest rate to pay off loans or credit cards at a higher interest rate can save you money, or help you pay off the debt sooner. Other advantages include having fewer payments to make each month, and less likelihood that you’ll be late on payments. 

The Con 

Depending on the terms of your new loan, it’s possible you can actually end up paying more in interest over the life of the loan, or that you’ll end up more deeply in debt. Before agreeing to a debt consolidation arrangement, it’s important to seek debt consolidation advice from a trusted financial professional. 

The Pro 

Debt consolidation can work if you’re with the right partner.  

The Con 

But it can also be a financial nightmare if you choose the wrong company. 

The Pro 

Ideally, there’s some cost saving involved in debt consolidation. The one new loan should have a lower interest rate and monthly payment than the combined cost of the bills you consolidated. 

The Con  

The debt is not forgiven or even reduced. You still owe the same amount of money and if you don’t increase your payments and decrease your spending, the problem will never go away. 

The Pro  

You’re simplifying the process of paying your bills. You make one payment to one lender with one deadline every month in place of multiple payments to multiple creditors with multiple deadlines. 

The Con  

Time can also be an issue. You should be prepared to spend anywhere from two to five years in a debt consolidation programme before eliminating the debt.