DEBT CONSOLIDATION: PROS & CONS YOU SHOULD KNOW

When you’re researching different ways to manage or eliminate your debt, one of the methods you will encounter is debt consolidation loans. Like other debt solutions, there are pros and cons to debt consolidation loans. In addition to covering those pros and cons in this post, we will also discuss other factors to consider if you choose this route. 

What is Debt Consolidation?

To begin, let’s quickly recap what a debt consolidation loan means:

“A debt consolidation loan is a new loan obtained from a bank or financial company to pay all your existing smaller debts under one consolidated loan. By combining your multiple debts or “consolidating” them, you now have only one monthly payment that fits within your budget.”

We also cover this topic in more depth in this recent blog post.

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    Debt Consolidation: Pros & Cons

    While there are undoubtedly pros and cons to debt consolidation loans, a consumer proposal is the most used debt relief option for debt consolidation in Edmonton. We believe that a consumer proposal is an excellent alternative to declaring bankruptcy or getting a debt consolidation loan for many people.

    If the following apply to you, a consumer proposal may be more advantageous than a consolidation debt loan:

    • Your credit is severely damaged
    • You cannot pay for the proposed reimbursement with a consolidation loan
    • You cannot combine all your debts
    • Your employer is withholding your wages

    However, a better understanding of debt consolidation pros and cons will help you make this determination for yourself. 

    PROS of Debt Consolidation

    One of the most notable advantages of this debt solution is that it simplifies your debts. You can use debt consolidation loans to combine outstanding debts to smaller loans, credit card balances, overdraft balances, bills, and even payday loans. A single loan from one source with one interest rate and one payment date can be less stressful to handle. If you owe money to multiple creditors, this can be a big draw for choosing this path. 

     

    CONS of Debt Consolidation

    Of course, a debt consolidation loan isn’t the right choice for everyone. 

    Depending on your situation, there might be some cons to this solution.

    For starters, in some cases, they can increase indebtedness. Debt consolidation companies charge several thousand dollars as fees. Some consolidators may even have a clause to collect their fee first before making any payments. These result in you owing more in the long run.

    Additionally, you do not have control over debt consolidation payments. If your consolidator decides to send zero or partial payments every month, you can do nothing about it.

    If you do not have the necessary collateral to put up, you may not qualify for this solution in the first place. To be eligible for a loan, you may need to provide collateral such as a house or a vehicle. If you are unable to make payments, you risk losing assets.

    Finally, if you opt for this solution but do not change your spending habits, it can result in further indebtedness. Proper credit counselling and significant changes to spending habits are essential when you opt for this route. 

    Call Fox-Miles to Discuss Debt Consolidation Services in Edmonton

    Are you still unsure whether debt consolidation or a consumer proposal is the right choice for you? We are here to help. We offer personalized service, the Fox-Miles way, including family-friendly, non-judgmental Insolvency, Bankruptcy, and Credit Counselling services to help you through difficult times. Call us today

    Did you learn a lot about debt consolidation pros and cons in this post?

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    Debt Consolidation: Pros & Cons You Should Know
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    Debt Consolidation: Pros & Cons You Should Know
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    Fox-Miles & Associates Licensed Insolvency Trustee
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