Debt consolidation – some important considerations

If you’re carrying several unsecured debts and you’d like to make your finances a little easier to manage/reduce the amount you’re paying towards your debts each month, you might find a debt consolidation loan useful.

Like any debt solution, debt consolidation has its pros and cons… so there are certain important things to take into consideration.

Please note: the following pros and cons will not provide a full description of a debt consolidation loan. For a more complete overview of debt consolidation loans, you should speak to a professional debt adviser.

Pros of debt consolidation

Consolidating your existing unsecured debts could be a good idea. Here’s why:

• It could save you money

If you’ve got a few high-interest debts (credit cards, for example, or store cards), a debt consolidation loan with a lower interest rate could save you money (over the same repayment period). However, if you choose to spread out your repayments (repaying the debt more slowly), you’ll pay interest for longer – so you could pay more in the long run.

• It can make your finances easier to manage

A debt consolidation loan allows you to repay all your existing unsecured debts in one go – leaving you with just one debt to repay to just one creditor. This means you’ll have one payment to make each month instead of several. So… keeping track of your finances should be much simpler.

• It can lengthen your repayment period

You can arrange to repay your loan over a longer period of time – giving you more freedom to decide how much you’d like to pay each month (subject to your creditors’ approval).

Cons of debt consolidation

Although it may be a good idea for some borrowers, a debt consolidation loan does have its cons:

• You’ll still owe money

Debt consolidation can make your debts easier to manage, but it’s important to note that you’ll still be in debt until the loan has been repaid.

• You could pay more in interest

Arranging to repay your loan over a longer period of time than your original debts could mean you’ll pay more in interest (which means you may pay more in the long run).

• You’ll be in debt for longer

Providing you can afford your repayments and nothing goes wrong, being in debt for longer needn’t be a problem. However, the longer you’re in debt, the more time there is for something to go wrong with your financial situation, so it’s important to know what you’d do if you started to find your repayments difficult to cover.

Tags: Debt consolidation

Posted by FinanceAZ on Apr 7 2011. Filed under Debt Management. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry