When You Have A Lot Of Debts To Pay Off, Then You Might Be Thinking Is Debt Consolidation Good Or Bad? There Are Both Advantages And Disadvantages Of Debt Consolidation, And That’s What We Attempt To Explain Here. Read On…
As you may be knowing, debt consolidation involves taking one loan to pay off multiple debts which you may be having. But if you are thinking, is debt consolidation good or bad, then here is one of its most important advantages – making one payment, rather than making payments for each of the debts which you may have. Moreover, the rate of interest may be lower compared to the other debts, for which you have been making payments. You can either opt for secured or unsecured debt consolidation, and one of the most important advantages of secured debt consolidation is that, the rates of interest are lower. Financial institutions usually require that you serve a collateral, which is usually your house, if you have one. And this is where the question arises, is debt consolidation a good option? Now that’s up to you to decide, but the following paragraphs will give you an idea of how does debt consolidation work, and how you can use it to your advantage.
Is Debt Consolidation a good idea?
Say you have five credit card bills to pay each month, along with a car loan, which makes 6 bills every month. And on top of that, you have a couple of late payments on a couple of those cards. That’s when a debt consolidation can help. You take a debt loan which equals the amount of debts you have, and pay off all your debts. And with it, you have to make a single payment, for the loan which you just took. When debt is consolidated, the installments you pay each month are considerably less. Moreover, with timely payments each month, you have the advantage of improving your credit score further. So, ‘is debt consolidation a good thing? ‘, yes it is, but only if you are sure that you will be able to make all payments on time. Moreover, you should also look at teaser rates also called introductory rates, as these rates may be higher after a certain period of time. So you need to ensure that the same interest rates apply throughout the term of the loan. Debt consolidation and making payments on time, gives you an opportunity for credit repair, so that you gain all the benefits of having a good credit history.
Is Debt Consolidation a bad Option?
Being approved for a debt consolidation loan can be tough, as banks and financial institutions go through your credit history before approving your loan. And if you have not made payments on time, then you may be charged a higher rate of interest. Yes, the amount you pay might be lower, but if you make long-term calculations, the amount you pay will be dramatically higher. Moreover, there are several debt consolidation companies, who provide debt advice to try to attract customers by promising to work with your financial provider. No doubt, you pay a lower amount, but a part of your payment goes to these debt settlement companies, and you may end up paying more. So it’s better to deal with the bank directly, whenever possible, so that you get approved for low interest debt consolidation loans. So, is debt consolidation good or bad, actually depends on how you use it.
Is Debt consolidation Better than Bankruptcy?
Another aspect of the answer to ‘is debt consolidation good or bad? ‘ is to consider whether it’s better than bankruptcy. Well, filing for bankruptcy can give you a chance of rebuilding your credit all over again. But the red mark on your credit rating would remain for as long as ten years. Moreover, even if you file for bankruptcy, the government may try to possess the assets you have, depending on the kind of bankruptcy you are applying for – chapter 7 or 13. No doubt, you can substantially improve your credit score even after bankruptcy, but once you file for it, the chances of financial institutions approving a loan are less. So if there’s a chance that the government may take off your assets, then it’s better to go for debt consolidation. However, having said that if your debts are substantial and if you find that even after going for bad credit debt consolidation loans, you may not be able to make payments on time, it’s better to go for filing bankruptcy. If you are in deep credit card debt you may want to know the credit card debt consolidation pros and cons, so that you can take an informed decision.
So all in all, debt consolidation has its own advantages and disadvantages, so you need to look at the pros and cons before deciding to go for it. Always go through the terms and conditions before you sign on the dotted line, so that you know the amount you will pay each month and for how long you’d be paying. Hope this information on ‘is debt consolidation good or bad’ has given you a fair idea of its pros and cons.