The anxiety of insurmountable debt can be suffocating. Debt consolidation offers the chance to get out from under debt, but it isn’t the right choice for everyone. Here’s what you need to know about using a single loan to create a single, monthly payment and say goodbye to all those oppressive minimum payments.
How Debt Consolidation Works
Debt consolidation uses one loan to pay off existing commercial debt. This is specifically attractive for people who are having trouble making minimum payments or feel the balance on their credit cards may never shrink.
And you’re not limited to one type of loan to make it work, either. A credit card balance transfer to one with a lower interest rate or a home equity loan can accomplish the same goal — so you have options.
The Pros of Debt Consolidation
This repayment strategy is beneficial because it enables an individual to pay off delinquent credit cards. Since these loans often come with lower interest rates, the monthly payments can be smaller than the total being paid in minimums for multiple debts.
For individuals on a tight budget, the added wiggle room each month can be a game-changer. The goal is to spend less on interest and send more toward the principle, which means some people pay off their debts even quicker when they consolidate.
The Cons of Debt Consolidation
Debt consolidation isn’t for everyone. For starters, paying off credit card debt with a personal loan or balance transfer won’t solve an underlying problem with overspending. Instead, it can create the opportunity to go further into debt since those full credit cards are suddenly back at zero.
Individuals with low credit scores might find the interest rates so high that they’re better off sticking with their credit minimums. Also, most programs have strict rules and zero tolerance for late payments, so people who aren’t dedicated to making on-time payments every month, without fail, aren’t good candidates.
The best news about debt consolidation is that it provides hope for people who feel their debt is dragging them under. Even maxed-out credit cards can be managed with this strategy for financial freedom. Just make sure to use it wisely.