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.