Debt consolidation allows you to do away with a number of debts that you currently have to pay by consolidating them into a single loan which is to be paid as a long term commitment. It does not eliminate any debt; rather it refinances it in order to ease the current pressure on your monthly budget.
Debt consolidation is not the right option for everyone. Here, we present some advantages as well as discredits of choosing a consolidated refinancing option.
Advantages of Debt Consolidation
Debt consolidation can provide you some advantages if you believe that you will be gradually increasing your income in the coming future and right now the number of payments that you have to do is simply impossible. These are a few common advantages:
1. Single Payment
Consolidation loans allow keeping track of a single loan and monthly payment. It removes all your balances such as those present on multiple credit cards and other avenues of credit. There are not multiple deadlines and you just have to focus on paying a single monthly sum. It reduces your stress and leaves you out of prioritizing which loans to pay off first when you are already struggling with multiple payments.
2. Less Stress
Many people find that it is easier for them to think about a single debt that they gradually have to pay. It reduces their stress levels and allows them to plan a future strategy to gradually pay off the loan.
3. No Collection Calls
Finally, the best relief is that you no longer have to receive the threatening collection calls that cause stress in the first place. As this loan pays off other debts, all collection calls immediately end providing you mental relief.
Disadvantages of Debt Consolidation
There are also some disadvantages of debt consolidation. We will briefly present some disadvantages that are quite serious in nature:
1. A False Sense of Financial Security
One of the problems with securing a consolidation loan is that it can create a false sense of financial security in many individuals. Many people can become careless if they are able to pay their monthly installments of the consolidated loan and again start bad financial practices that first landed them in this situation.
2. Collateral at Risk
You can mostly get a consolidated debt loan if you have some collateral as insurance such as a home, retirement fund, car or any other property. The downside to securing such a loan is that if you fail to pay it according to the conditions, then you will lose your collateral as the loan is secured against it.
3. Long Term Loan
Debt consolidation loans are usually for much longer terms than the loans they replace. They can often mean that you have to pay back a lot more money than you currently owe to other parties. A lower monthly payment simply means that the loan is for a longer time period.
The Right Option!
Debt consolidation can either be a right option or a further plunge into financial problems. If you find that you simply have recovered from your past mistakes and are now more mature, then debt consolidation is a good option for you. If you feel that you cannot stop your expenditure or fail to play long term payments, then it is simply not the best choice for you.