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Pros and Cons of Debt Consolidation

If you have multiple bills that you’re struggling to keep up with, especially high-interest credit cards and medical bills with high monthly payments, you may be considering consolidating these into a single monthly payment. We are sharing the pros and cons of debt consolidation to help you make an informed choice so you can take the right steps for your financial future.

What Is Debt Consolidation?

Debt consolidation is a way of rolling your unsecured debt (like medical bills and credit cards) into one monthly payment. Sometimes this is done through a debt consolidation loan in which the lender gives you the money directly to pay off your creditors, while other times, the lender will pay off your creditors directly. Other times, a balance transfer credit card will be used to consolidate debt as these cards often have a 0% or low introductory interest rate.

So, is debt consolidation a good idea? It depends on your situation and whether the benefits outweigh the cons.

Benefits of Debt Consolidation

First, let’s look at the benefits of debt consolidation.

Fewer Bills

By consolidating your debt, you’re not having to juggle different credit cards, medical bills, and student loans with different due dates and interest rates. Streamlining your bills makes them easier to keep up with and reduces the possibility of late fees.

Lower Monthly Payment

If you take out a loan or transfer all your payments to a low-interest credit card, you may see a drop in your monthly payments. Often, this is because it spreads your bills out over a longer period of time, which can cause you to pay more in interest, but if you’re struggling to pay your current bills, this may be beneficial.

Faster Payoff

If you get a 0% introductory rate or a much lower interest rate on your consolidation and a lower monthly interest rate, you can add to how much you pay on the bill each month. This can speed up your payoff schedule and also reduce how much you pay in interest.

Lower Interest Rate

Most debt consolidation loans have much lower interest rates than credit cards. However, it’s important to shop around and find lenders that will give you an accurate quote upfront to get the best rate.

Downsides of Consolidating Your Debt

Now that you have a better idea of the benefits, it’s important to consider the downsides of consolidating your debt.

Higher Interest Rate

In some cases where you have student loans and medical bills, debt consolidation may actually have a higher interest rate, especially if you use a credit card with a balance transfer. Often, users don’t pay it off before the introductory period ends, so they are then facing an APR of up to 25 percent.

Longer Repayment

Most debt consolidation loans can last up to seven years. Again, this may still be worth it if it drops your monthly payment and improves your credit standing, but it can also be frustrating when trying to get out of debt and you may end up paying more in the long run in interest.

Payments May Be More Than You Can Afford

If you are struggling to pay your current bills and simply don’t make enough to keep up with them, debt consolidation may not lower your payment enough to where you can keep up with it. And if you miss a payment in a debt consolidation loan, you are subject to high fees and negative comments on your credit report.

Is Debt Consolidation a Good Idea?

It can be, depending on your circumstances. Instead of taking out another loan or a credit card, sit down with a debt consolidation lawyer who can take more proactive steps to help you get out of debt. For example, a lawyer can assist with:

  • Negotiating lower monthly payments or smaller lump sum settlements.
  • Setting up payment plans with the IRS.
  • Setting up a short sale on your house to avoid foreclosure.

They can also discuss other options with you to help you determine the right steps for your financial future.

Schedule a Free Consultation with a Debt Consolidation Lawyer Today

When your debt repayments feel like they’re insurmountable, there is hope to get out from under them more quickly than you think. Schedule a free consultation to speak with a debt consolidation lawyer today by calling (954) 932-7804 or filling out the form below to get started.

Written By:

Attorney Robert Stiberman

Robert is an experienced bankruptcy attorney adept at handling Chapter 7, 13, and 11 filings, with more than 15 years of experience in bankruptcy cases. Robert represents clients in both consumer and business bankruptcy ... Read More

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