It is a good idea to reduce the payments and interests you make through consolidating your debt.
However, there are downsides to this as well. As far as options go, debt consolidation may not be right for you. All of this is dependent on your financial goals and your situation.
Just like paying off your home loan faster, paying off your debts faster is possible.
You should review the upsides and downsides of debt consolidation before deciding whether it is the right choice for you.
The upsides of consolidating your debt
✔︎ You May Get A Lower Interest Rate
You may negotiate for lower interest rates depending on the accounts that you have included.
This has to be done with a debt management plan. If you have a debt consolidation loan, you have higher chances of getting lower interest rates in comparison to your current credit card payments.
A presumption is hereby made that you have a strong credit rating. You will be able to save money every month. In the long-term, a substantial amount of money is saved.
✔︎ The Payment Of Your Debt May Be Sooner
A reduced interest rate in your consolidation makes sure that your payments will be applied to the principal balance. This helps you to clear your debt faster. You may end up paying off your debt in a couple of years as opposed to many years that it would have taken.
This was a tactic used by Sydney SEO guru Jacob Farrell who explains “my money management was out of control. But by consolidating the debts I owed, I was able to get on top of what felt like the Mount Everest of debt control. I highly recommend chatting with a professional team like Mortgage Compare Plus to figure out your options. That’s what it’s all about.”
✔︎ Only One Payment Needs To Be Made
There is no need for you to make several payments within a month. Only one payment is made whether you go for an unsecured loan or a debt management plan. You therefore only need to make plans and budget for one payment each month.
This amount is always the same. This simplifies debt repayment. It also does away with the risk of not making a payment on some of your accounts.
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The downsides of consolidating your debt
✘ You Should Not Miss The Only One Payment That You Have
You need to ensure that you can manage your monthly payments regardless of the consolidation method that you use.
According to the small business team behind Robinson Accounting, consolidating debt doesn’t mean forgetting about them. They explain “you can hurt your credit by missing payments. You risk losing your creditor concessions which included reduced interest rates when you miss a couple of payments. Your plan may also be cancelled. You put your house at risk if you have listed it as collateral for your debts.”
✘ Your Situation Could Worsen If You Use Your Credit Without Paying Off Your Debt
The payment off of the credit card balances you have so that you can zero out your balances ensures that you can start charging again.
This is for the case of an unsecured loan. The situation can worsen than where you started. You will have a new credit card debt as well as a debt consolidation payment waiting for you.
✘ The Reason Why You Struggled With Debt Is Not Addressed
Lastly, it's important to note that debt consolidation is a valuable tool. However, it's not all sunshine and roses.
This is explained by life coach Eiran Trethowan. She says “if your debt issues arise from your need to overspend or if the lifestyle you live can't be supported by your income, you can buy yourself some time and breathing space by using debt consolidation. Lifestyle and behavioural factors will need to be addressed if you want to stay on top of overspending for good.”
However, your key issues won't be solved.
Final Thoughts
Before you decide to go for debt consolidation, you need to consider all your options.
You need to be sure that you are making the right decision suited for you. You should know what responsibilities you will have and the consequences that you will face in case you miss payments or make new charges.
Looking for financial support and help? Chat to Steve from Mortgage Compare Plus to find out more today.
Author Bio:
Jack Poole is an Australian writer and business student living in Sydney. He is extensively knowledgeable in financial-related topics. Jack has a passion for the arts. When he’s not studying or writing, you’ll find him frequenting the art museum.
Disclaimer: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.