Should I Consolidate My Debt?

There is a lot of fear and anxiety among many people who are facing difficulties in repayment of loans. If you are one of them, then it is essential to know how you can reduce the risk and benefits from debt consolidation loans. When faced with creditor demands that may include additional fees or interest rates which can be too high for your budget, then it becomes quite an important step to seek aid from your creditors by taking debts consolidation loans. 

There are several ways through which you can pay off all existing debts through this loan option. However, what needs to be focused on much more is how you have to approach this process so as to ensure that there is no problem later on after the completion of the repayment procedure. Though there are a number of methods available for debt management, all of them are not equally effective. There are only a few ways through which you can actually get rid of your debts in an efficient manner. 

The most commonly adopted way is taking debts consolidation loan that will combine the amount of all the loans into one single loan for repayment purposes over regular installments. This means you have to repay this consolidated loan in fixed monthly repayments with an interest rate, but it will be much lower than compared interest rates charged by each creditor.

If borrowing higher sums can increase chances of experiencing severe credit problems in the future, then how about applying for small amount debt consolidation loans? Well, a lot many people think that applying for small or moderate level loans will definitely increase their risks, and eventually, they may face problems in the future in repayment of larger consolidated debts. 

However, it is absolutely not true in the case of debt consolidation loans. This form of loan is considered an effective tool even for those who have limited financial resources and apply for small level debts consolidation loans. As the basic purpose behind this sort of loan is to provide relief from all kinds of existing debts, therefore you just need to be careful about your credit ratings that must be good enough, or else applying for such a loan will become quite difficult.

Who Chooses Debt Consolidation?

In order to recognize how one can reduce the risk and benefits from debt consolidation loans, you also need to know why people go for these types of loans? There are basically two reasons behind the demand for debt consolidation loans: 

1. People opt for this sort of loan when they can't afford to repay their debts in time because of rising interest rates. 

2. People opt for this type of loan when they want to avoid any late payment fees and high penalty charges.

So, these are some important points that need consideration while applying for a debt consolidation loan. If you think that your credit ratings aren't good enough or if you don't know how much amount you can borrow, then it will be better not to make any false promises and remain realistic in all matters related to repayment plans and weekly/monthly income and expenses list. 

Are you one of the many people who worry about the effects of consolidating your loans? Maybe you have attempted a couple of consolidation programs only to get yourself deeper in debt. The fact is that many people think this method is a great way to get their debts under control and they fail to see the real risk involved with it. In order to clear your doubts regarding the consolidation of loans, you must be aware of all the pros and cons of this form of debt relief method. 

Cons of Debt Consolidation

Here are the top 4 reasons why debt consolidation may not be very beneficial for you:

1. You may be paying longer

It increases the time frame over which repayment occurs. You could end up repaying for longer durations than what was originally agreed upon. This means you will either have to make higher monthly installments or extend the date of your repayment term. If you fail to do so, then there are chances that your credit ratings might go down because of the accumulation of your debt.

2. It includes risky features

If you fail to repay consolidated loans then the lender will have right over all of your assets and property. In addition, they can also sell these assets in order to recover the debt amount from you.

3. The loan interest rate could be higher 

Since credit card debt is a very risky business for lenders so most of them prefer not to bear this risk by themselves. This means that if you consolidate all your debts with one single entity, then it is likely that they will charge more interest rates on your consolidated loans.

4. It requires high eligibility criteria

If you're looking at consolidating your student loan with another, then there are high chances that you might end up having a poor credit history. This is because student loans are not counted as debts by lenders and they don't take it seriously enough. This means you must have good credits, a sufficient credit limit, and excellent repayment history before your lender approves your loan application for consolidation purposes.

Pros of Debt Consolidation

Here are the top 4 reasons why debt consolidation may be very beneficial for you:

1. You can simplify your monthly payments

When you have multiple debt balances, you have more financial accounts that need to be paid on time each month. This can make it difficult to keep track of everything and for some people, means they might accidentally forget to pay something one month. With debt consolidation, you only have one account that needs attention every month. 

2. Debt consolidation may be tax-deductible

If your debt was used for educational purposes (for instance, if you took out student loans) or for medical expenses, you may be able to deduct the debt from your taxes. This could save hundreds of dollars and reduce the amount you need to repay. 

3. You can negotiate a lower interest rate

When you consolidate your debts, it's often possible to secure a lower interest rate than what was originally offered. This means you will pay less in fees and interest over the life of your new debt. 

4. Debt consolidation frees up cash flow

Having to make multiple payments each month (for car loans, credit cards, personal loans, and more) can reduce your disposable income substantially and prevent you from saving any money or paying off other debts. Debt consolidation can free up your cash flow so you have more money to put into savings or towards other outstanding loans.

Conclusion

Debt consolidation loans can be a great way to get your debt under control, but you need to be careful about the risks involved. Make sure you understand all the pros and cons of consolidating your loans before making a decision. If you're not sure if this is the right option for you, consult with an expert who can help you weigh your options and make the best decision for your situation.