Is A Debt Consolidation Loan For You?

by Fox Symes on March 9, 2011

As you consider the pros and cons of debt consolidation loans, realise your situation is unique from anyone else and what is suitable for one person may not be appropriate for you. You need to find a debt consolidation loan which is right for you. Before applying take a few minutes to consider the benefits and drawbacks of using these loans. How much debt you have, the type of debt it is and the overwhelming desire you have to be out of debt (or not) is what will help you determine the best route to take. The good news is that debt consolidation loans are one of the best ways to stream line finances.

Some Benefits Include:
The advantages of debt consolidation loans can vary depending on the type of loan you will get. However here are some aspects to think about.

  • One monthly payment. You may have several debts to repay, which means that each month you have many debts to remember to pay. The more debts you have the more likely you are to miss a repayment. With one payment it is far easier to manage you debt repayments. (It helps with organisation)
  • A lower interest rate. Just imagine when you can call your credit card company to let them know you are getting a debt consolidation loan for your balance that is half what they are charging you. This is especially true for many home equity loans, or other secured loans. In the long term, you could pay thousands of dollars less with just a few percentages of difference here.
  • Pay off total debt quicker. For many people consolidating all their payments together helps them make one payment that is lower each month. You can use it to your advantage by paying more than the minimum payment each month and therefore saving even more money in the long term.

These benefits make debt consolidation worth considering however if mismanaged there can be draw backs to debt consolidation.
Consider The Disadvantages
Debt consolidation loans can have a few drawbacks too. Consider how these would affect you.

  • It is easy to get into even more debt. As you are no longer repaying numerous debts and have eliminated the debt from your credit cards it is easy to slip back into bad spending habits. Debt consolidation needs to be used in conjunction with more responsible financial management.
  • You could lose assets. If you get a home equity loan to use for debt consolidation and find yourself in financial trouble again your home could be at risk. Because the home is backing up the value of the money you borrowed, lenders can take the home from you if you default on the loan.
  • You could hold debt longer. Depending on the terms you set up for the debt consolidation loans you get, you could find yourself repaying that debt for a longer amount of time. For example, a home equity loan could be repaid over ten, fifteen or more years, which would draw the debt out. In some situations, you could pay more in interest because of this length of time. A good way to avoid this problem, though, is to pay off your debt more than the minimum at a time.

The cons of getting a debt consolidation loan should be given careful consideration.

What Works For You?
Are debt consolidation loans the right option for you? For many people, they do help to get out of debt quickly, but are they right for you? Consider your financial situation, your likelihood of getting into debt again and the benefits of having just one loan to pay. Take steps to protect yourself too, such as repaying debts ahead of schedule and keeping interest rates low. Doing these things can protect you in the long term.

Fox Symes is the largest provider of debt solutions to individuals and businesses in Australia. Fox Symes helps over 100,000 Australians each year resolve their debt and take financial control.

If you would like to find out more about debt consolidation and other debt solutions, contact us on 1300 361 204

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