Will Debt Consolidation Fix Your Debt Problem?
It can be hard to deal with debt, especially when it is overwhelmingly large. Most people will want to ease the debt burden, but they do not want to go through bankruptcy.
This is where debt consolidation comes in and in most cases it could be a solution, but is it the right one for you?
What is Debt Consolidation?
With debt consolidation, all of your separate debts are combined into one single debt. You are able to take a debt consolidation loan, which has the specific purpose of paying off debts, but you don’t always have to get this special loan.
If you have a credit card that has a high enough limit then you are able to use a balance transfer to put all of your debts on to a single credit card. You can also take a second mortgage, use a personal loan or a home equity loan.
Debt Consolidation Advantages
Lower Monthly Payments
With debt consolidation you will be spreading your debts over a longer period of time, which means you will benefit from a lower monthly payment that might be friendlier on your budget.
Lower Interest Rate
You should try and get a lower rate loan or credit card with debt consolidation. With a lower interest you will have a lower debt cost overall.
Debt is Easier to Manage
After you have taken debt consolidation, you will have only one debt payment to manage instead of multiple debts. Having only one debt payment to manage you will find it easier and a lot less stress.
Debt Consolidation Disadvantages
Your Home is at Risk
If you choose to secure your debt with a home equity loan or mortgage then you do risk your home being foreclosed if you fail on payments.
Higher Cost of the Debt
Even though you will have lower payments when your debt is extended over a longer period, you will be paying more for your debt.
Having a Co-signer
You may struggle to get a loan to consolidate your debt if your credit score has already suffered due to your debt, so you may need the help of a co-signer.
Debt consolidation is an option if you are able to do it at a low cost without risking your property or other assets.
Even though debt consolidation can help you to pay off your debt, it does not solve the problem. You need to look at why you got in debt and change your habits so you can avoid further and future debt.
If you are looking for debt consolidation, head to FinanceMan.