October 20, 2021

Is Debt Consolidation Right For You?

It seems like every time you turn on the television or radio there is an advertisement about the many advantages of consolidating your debts. The gist of the advertisement is always the same, if you use the company to consolidate your debts, your life will be better. According to the advertisements, consolidating you debts is the only thing you need to do in order to live a happy life that is free of financial worry. What the advertisements don’t tell you is what debt consolidation really is, or if it is truly the right choice for you?

What consolidating your debts does is take two or more of your current debts, and combines them into one larger loan. Contrary to what the advertisements imply, the consolidation doesn’t necessarily make the loans smaller, what it does is eliminate the hassle of trying to remember which bill needs to get paid when. For some people, having the debts consolidated into one lump payment is the difference between paying the loan on time, or forgetting about it and acquiring a finance charge.

It is important to understand that having their debts consolidated into one large loan is not for everyone. There are some cases where it is a very good idea. There are also some cases where the consolidation actually led to some bigger financial problems.

The consolidation of debts is a very useful solution if you are currently struggling to pay off several high interest debts, such as several different credit card debts. More often than not, having these types of loans consolidated into one, will actually lower the amount of interest you ultimately pay. The other advantage of having credit card loans consolidated is that you will no longer have to worry about racking up huge late fees and service charges because you forgot about a payment for a few days. As long as you make your monthly payment on the consolidated loan, the amount of money you owe will decrease at a steady rate.

One of the reasons some people find that consolidating their debts is not the answer they were hoping for is due to interest rates. There have actually been incidents where the consolidating the loans have increased the amount of interest the person has to pay over time.

Another thing to consider is the type of loans you are hoping to consolidate. Some loans, such as a second mortgage on your home are best if you don’t consolidate. One reason for this is because the consolidation changes the terms of the original loan.

One of the things you may want to consider is a plan that allows you to consolidate some of you loans and leave others unconsolidated. This works especially well if you are able to consolidate similar loans. For example you may consider consolidating your various student loans, and maybe consolidating all of your credit card loans into one lump payment, but leave your car loan and mortgage unconsolidated

For some people debt consolidation is the best possible answer to their financial situation. You are the only person who can determine if the process is a good fit for you. You should also plan on meeting with a financial counselor before making any final decisions.

For more information, click here: http://www.loanconsolidation.ed.gov/

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