Pros and Cons of Debt Consolidation

It seems like everywhere you look there are advertisements for debt consolidation services.  Many of these companies promise you freedom from high payments, extreme interest rates and demanding creditors.  But is it worth it?  Let’s take a look at the benefits and disadvantages of debt consolidation.

One of the best things about participating in a debt consolidation program is reducing your multiple monthly payments.  Once you go through the process, you have only one payment to make each month with one interest rate, rather than five payments with five varying rates.  Also, the interest rate on your single payment is often reduced because that is often an added bonus of going through the debt consolidation program.  Additionally, you will see lower monthly payments since you are no longer paying multiple creditors with higher than average interest rates.  Plus, many times those who take advantage of consolidating their debt will be entitled to tax breaks.

Sounds terrific, doesn’t it?  It really is.  There are some things you should look out for.  One main reason why it might be best to avoid it is because of the possibility of entering into further debt.  This is due to the fact that more money has been freed each month, thus giving into the false pretense that you don’t have as much debt accrued as you really do.  It also takes longer to pay your debt off because it’s a larger amount with interest accruing.  You can also spend more in the long run if you don’t pay more than the minimum due, and since debt consolidation loans are secured, you can lose everything if you can’t or don’t make your payments.

There is much to consider when weighing the pros and cons of debt consolidation.  The best thing to do is to think about what is best for you and your family.  If you decide to do it, then develop a strict plan while enforcing self-discipline.