Debt Consolidation Pros and Cons

With all the talk today about unemployment and foreclosures, people are trying to figure out how to become debt free. You have many options available to you and one of those options is Debt Consolidation. Debt Consolidation, as it's name implies, is a method of consolidating your debt. This is done by taking the total balance of all your debt, or at least the debt you wish to consolidate, and putting it into one single loan.

Pros of Debt Consolidation:

Usually lower interest - With our current economic situation, credit card companies are jacking up interest rates to try and make a little extra money. You were most likely paying a higher interest rate than you would with a consolidated loan, but now it's almost a certainty with the higher interest on credit cards. Consolidated loans are unsecured loans that unless you go to a pay day loan place, should yield you a better rate than your credit card companies. The interest rate should also be fixed, which means you think you're paying 12% APR and then get you bill a month later only to find out you're paying 29.99% APR.

Less bills - When you do Debt Consolidation, you're taking multiple bills and making them one. This in turn means less bills to deal with. If you're like me, you lose track of that one or two random bills and when they're due. What happens when you do this, is you're a week or two late and then your interest rate goes through the roof.

Fewer phone calls - Yes, Debt Consolidation can reduce the amount of people calling you. By this I of course mean creditors. If you've fallen behind on a few of your credit cards, medical bills, etc., you most certainly have people calling you all the time asking for money. Since at that point you're so short of cash, you probably have nothing good to tell them and then they make you feel guilty. When I was in this situation I would usually talk to them about what I was watching on TV to see if I could get them to hang up on me.

Less stress - This is sort of obvious at this point because if you have lower interest, less bills and creditors calling, than you have less stress.

Well, we've covered the Pros of Debt Consolidation, now it's time for the Cons.

Cons of Debt Consolidation:

Not right for every situation - If you are so far behind on your bills that you can't get an unsecured loan for debt consolidation, than you will have to review other alternatives. Some of these include Debt Settlement or Bankruptcy.

Take longer to pay off - Debt Consolidation loans will often have a lower payment than you were paying before. This is because of lower interest which is a good thing and longer payment term which isn't so good. If you take longer to pay back money, even if it has a low interest rate, you may end up paying more in the long run.

Regardless or not you choose Debt Consolidation, Debt Settlement, Bankruptcy, etc., you need to take responsibility for your financial future. By this I mean, when you consolidate your debt, you will have lower payments and might feel like you can now go out and make some more big purchases. This of course will lead you down the same path you went before. Take this opportunity to pay more than your minimum monthly payments to become debt free sooner. There are few greater feelings than looking around your house and knowing that the couch you're sitting on or the TV you're watching are paid in full. Stay Debt Free, you'll sleep better, I promise you.