If you are saddled with all kinds of debts, loans, and credit cards simultaneously, you are likely to seek a debt consolidation to reduce your burden. However, taking a debt consolidation loan may not always be your best choice. You have to know the pros and cons clearly and find out whether you are suitable for it.
Advantages of Debt Consolidations
If your debts contain high interest rates or monthly payments, debt consolidation might be a good choice. After you consolidate your debts, you can enjoy a relatively lower interest rate or monthly payment. Therefore, you will soon get rid of your debt and enjoy your life. Besides, debt consolidations can also enhance your credit score and pave the way to attracting future creditors. If you own an asset and your consolidation loan is secured with it, you also get a tax deduction.
Disadvantages of Debt Consolidation
Notice your payment schedule. If the payment term is extended, you will stay in your debt longer. In addition, debt consolidations cannot guarantee that the lower interest rate will remain unchanged. This is true especially when you are dealing with credit card balance transfers. Chances are that the lower interest rate is used for introductory promotion and the rate can finally go up and drag you back to the high-interest-debt.
Am I suitable?
Debt consolidation loans usually require borrowers to pay off the debt as soon as possible. If you have a plan to pay off your debt regularly and you are sure you can stick to it, you may control your spending well and manage to allocate enough payments to repay the debt. By contrast, if you are the person who cannot control your spending, you are likely to end up adding more debt. Vicious cycle sucks. What is more, debt consolidation loans with lower interest rates often entail high credit scores. If you don’t have a good credit score, try your luck elsewhere.