If you feel like you have too many credit card bills, medical bills, and loans, it may very well be time for you to think about combining all of your bills into one simple monthly payment. This could lower your lower your annual percentage rate, which make the debt easier to manage and less expensive to repay. With that said, debt consolidation does have some caveats to consider..
Let’s take a look at the pros and cons of debt consolidation.
Pros of Debt Consolidation
- Lower annual percentage rate, which could eliminate your debt even quicker.
- All of the money you save on your monthly payment can very well go towards paying off the debt consolidation loan earlier.
- You will have to make just one monthly payment.
- The rate you get will be a fixed rate for the life of the loan, so you do not have to worry about your payments going up in price after the loan starts.
- Doing a debt consolidation loan will give you a simple and prompt finish to helping yourself to become debt-free.
- You could very likely build your credit score after the loan is paid off.
- As long as you make your debt consolidation monthly payments in full and on time month after month, your overall net will be positive, especially if you are consolidating a lot of credit card debt you have.
- Paying off your credit card balances is going to lower your credit utilization ratio, which is one of the largest factors that goes into play to determine your credit score.
Cons of Debt Consolidation
- You are not always going to qualify for a lower interest rate.
- Balance transfer credit cards are not always easy to qualify for. Many times, to get one of these types of cards, you are going to need a credit score in the good to excellent credit range.
- Debt consolidation loans are more reachable and there are consolidation loans customized for bad credit applicants. Borrowers who have the highest credit scores are going to receive the lowest interest rates.
- Unless you are going to get a lower interest rate than the debts you are currently paying, debt consolidation is not going to a good idea to go for. Many loans companies will prequalify you for a loan, so you can see the actual rate will be approved for.
- You could fall behind on payments and doing this, will make your situation worse than if you did not get the debt consolidation loan in the first place. Do not miss your payments.
- If you get a loan with a promotional period, you should try really hard to pay off the loan because once the promotional period is up, your payments are very well likely to go up.
- If you fall behind on your debt consolidation loan, you are most likely going to rack up on late fees.
- Any missed payments from your loan are going to be reported to the credit bureaus and going to jeopardize your credit score even more.
Before your decide on a debt consolidation loan for you to pay off your credit card bills, you are going to want to make sure the new monthly payment is going to fit comfortably within your budget for the entire time of the repayment period. If you do not think you are going to be able to make payment, do not get a debt consolidation loan.
The pros and cons of debt consolidation not withstanding, You need to make sure you address the root of your credit problem. There is a reason you have too much debt and you are going to want to address your problems so you do not get back into the same place as your debt is paid off.
Before deciding on a loan, it will be wise to look at the debt consolidation pros and cons and decide what you should do because you will be making a huge commitment.