The Pros and Cons of Debt Consolidation


You have found out that your credit score is not as high as it once was, and you are finding it impossible to get a loan for the house that you've always wanted. The whole world seems like it's against you, from the banks to the credit card companies and everyone in between. It might seem like there is nothing that you can do to right your life. Then you hear about debt consolidation, where a company will take all of your debt, and lump it into one monthly payment at a lowered interest rate. It sounds like a dream come true, but not everything is as simple as it might appear. While the consolidation of debts might work for some people in some situations, it won't work for everyone.

You will be able to find plenty of pro reasons to try debt consolidation, but you will run into just as many cons. Look at the following positives and negatives regarding consolidation and then determine if this is the best course of action for you, or if you can find another way to take care of your money troubles.

The pros of consolidating certainly look promising. One of the first benefits cited by the companies that encourage you to consolidate your debts is that you will only have a single monthly payment instead of many. This means that you won't ever forget to mail out a credit card bill and run the risk of late fees and the company reporting the late payment to the credit bureaus. This debt consolidation will save you a lot of time as well. In addition, this means that you will only have to deal with one creditor, and that can certainly make your life a lot easier.

Another benefit of consolidating is that you will possibly get a lower overall interest rate, which can save you a substantial sum of money over time. In many cases the total monthly payment is also lower. You can use the extra money that you save on interest to pay down your mortgage or car payment faster.

Of course, you must also consider the cons before you head to the Internet to hunt down a consolidation company. Because you now have one large loan, the time that you will spend paying it is going to be significantly longer. If you try debt consolidation, you are going to have to be in it for the long haul. Also, because the consolidation loans are often secured loans, you can lose a lot more if you fail to pay the loan.

Another drawback of the consolidation loans is that some people simply have trouble with their spending habits. Since the monthly payment is often lower, people find they have a little more money left over at the end of the month. For some this temptation is too great and they end up spending the money, perhaps even taking out another credit card, reasoning that they have more money now to pay off another card. This behavior is dangerous and is something that debt consolidation cannot help.

The easiest way to avoid debt consolidation is not to get your finances to a point where you need help. If you are one of those people who find that they can't control their spending, or if you are a family member of one of these people, you can find therapy that will help. If you don't have trouble with spending but simply find that you need a little bit of extra money on one month, you can use a payday loan rather than putting everything on your credit card. This should help to curb the need for later debt consolidation.

You can get a payday loan through a variety of online lenders, and even though they will charge you some interest, it won't be the kind of interest that will follow you around and haunt you like the credit card interest will. It won't pile up and cause you to seek debt consolidation in six months or a year. Another great thing about the interest on a payday loan is that you know what it is when you take out the loan. The credit card companies have been having a big payday by increasing the interest rates of their best customers without ever telling them that it is coming. The problem has become so prevalent that even the government is getting involved and may regulate.

Because payday loans are easy to get and easy to pay back, you won't have the same trouble that you do with credit cards. You don't even need great credit for a cash advance loan ? all you need is a good job and a checking account. Avoid the plastic and you will avoid the need for debt consolidation.