When you have a mountain of debt, the thought of ever eliminating it can seem overwhelming. Hence why for many, especially for those that owe money to multiple creditors, debt consolidation can feel like a way out. It may seem like a way to more easily begin the journey of chipping away at your debt.
However, like most financial decisions there are always factors to consider before deciding which route to take. And when it comes to debt consolidation, there are nonetheless benefits and disadvantages.
Before opting to consolidate debt, carefully weigh these five pros and cons.
Pro: One Payment
Having to organize your life and income around multiple debts can make your financial life that much more complicated. Between remembering who to pay and when, to deciding which debts are most important and how much each debtor should receive, keeping your payments on track and organized can seem impossible. Debt consolidation can help eliminate some of this stress by combining all your debts into one easy payment.
Pro: Low Interest Rate
Each individual debt comes with its own interest rate, and some are inevitably higher than others. That being said, at the end of the day, you could be paying hundreds to thousands of dollars in interest alone. When you consolidate debt, it can help in the sense that you’ll only be paying one rate, and in some cases, a lower rate. Overall, potentially saving more.
Pro: You’ll Pay Less Each Month
Attempting to pay off all your debts each month can seem like money is constantly being siphoned from your bank account. Debt consolidation stands to help lower that monthly payment through a single account and with that lower interest rate. In the end, you’ll in most cases pay less.
Con: You Could Accumulate More Debt
Debt consolidation inherently helps you free up more money to spend on other expenses. Unfortunately, if you’re not careful, you could get the illusion that you can use this money to simply spend more or put yourself in further debt. If you do decide to consolidate, be careful to put that “extra” money towards other debt or choose to save it.
Con: You Could Owe More Overall
Although your interest rate might be lower, consolidating your debt could mean that you have a rather large lump sum. In turn, it could be more difficult to pay off that large sum than if you’d kept your debt as smaller payments. That being the case, you could end up paying more interest in the long run. To keep yourself from falling in this trap, be sure to stay on track and pay off the account as fast as you can.
For some, debt consolidation could be the answer to an array of high-interest debts that they struggle to keep organized. It could be the key to paying off your debt in a timelier manner. For others, however, the cons of debt consolidation could, in their case, outweigh the pros. In the end, be sure to carefully consider each sides of debt consolidation and ensure that you’re choosing the right route for you.
Have you considered consolidating debt? Do you think the pros outweigh the cons?- Kayla