If you have got yourself into a large amount of debt, then you might be beginning to feel like you are unable to cope. Financial debt can be seriously detrimental to your mental health and wellbeing, as the impact it can have can be significant, especially in terms of your stress levels. Every year, there are a number of suicides linked to debt and failing to cope with being in it, which is what makes knowing how to deal with debt so important.
That’s where debt consolidation loans come in; this type of loan offers an accessible method of managing your finances and getting out of debt. Of course, debt consolidation loans aren’t suitable for everyone – that’s why it’s essential to determine what the pros and cons are of this type of loan.
To help you determine whether a debt consolidation loan is a good move for you, we’ve put together this handy guide to the pros and cons – read on for everything that you need to know.
What are the pros of this type of loan?
One payment each month: One of the benefits of this type of loan is that you can go from making multiple debt payments to make just one payment each month to the debt consolidation loan company, simplifying the process of clearing your debts. This also means that you don’t have to choose to pay one company over another if funds are tight, as it will just be one, manageable payment that needs to be made.
Lower rates of interest: Another benefit of this type of loan is the fact that it will come with a lower rate of interest compared to other loans. This is because if you’re in debt, you will be paying back multiple companies and having to also cover multiple amounts of interest, which can be incredibly expensive.
Payments are lower: The main reason that people choose to take out a debt consolidation loan is simple – because it means lower monthly payments. This makes staying on top of your debts more manageable and makes life far easier for you financially.
What are the cons of this type of loan?
Potential to get into more debt: Because a debt consolidation loan will leave you with extra funds free each month, there is the concern that you may end up in more debt if you aren’t careful. However, if you make wise choices and choose to put this extra money back into your loan to pay it off faster or put it away in a savings account, then this doesn’t have to be an issue.
You may end up spending more: Even though the monthly payment rate and amount of interest is lower, it will take longer to pay the loan off, which means that you may end up spending more money than you would do if you have paid it off lender by lender.
It doesn’t solve the problem: A debt consolidation loan may help you to slowly pay back what you owe, but it doesn’t address the issue. If you are going to get your finances back on track, you need to change your approach to your finances.
While there are pros and cons to debt consolidation loans, the benefits can be fantastic, especially if you are struggling to stay on top of each of your debts on their own. However, like any loan, a debt consolidation loan should not be taken out lightly, without first considering every aspect of doing so.