Debt Consolidation: Pros And Cons

Debt consolidation pros and cons are as extreme as losing all the debt you owe or acquiring more problems. The pros or advantage of debt consolidation is combining all the debt you owe into one large loan payment with a lower interest rate. There are various debt consolidation options people choose from such as working with debt counselors, opening a credit card or acquiring a home equity loan. However, this quick fix debt management solution does accompany cons, or disadvantage, such as losing property.

Pros: Debt Consolidation Makes Creditors Disappear

Debt consolidation eliminates or reduces consumers’ debt by paying off their bills at one time with one loan. Thus, you only have pay one financial institution instead of five to 20 different creditors. Consolidating debt also stops any accruing interest, late fees and penalty charges which accompany unpaid, late bills. Also, debt consolidation stops the harassing telephone calls and letters from creditors. Debt consolidation is an alternative for people who aren’t interested in filing bankruptcy.

Cons: Debt Consolidation is a Quick Fix with Tremendous Risks

Although debt consolidation eliminates people’s unpaid bills and harassing phone calls vanish, the debt remains. In other words, your creditors are gone, but you the same amount of debt to someone else. According to Bankrate.com, this debt management strategy—debt consolidation—of fighting fire with fire can result in the same amount—if not higher—debt within two years.

Also, debt consolidation doesn’t automatically qualify you for lower interest rate. Non-payments hurt credit reports and lower a credit score. Financial institutions use the report and score to decide whether or not to give you a lower rate. Thus, with a negative credit you won’t receive a lower interest rate. Financial institutions consolidating debt offer people consolidating unsecured debt without providing collateral a higher interest rate.

Talk to an Attorney

Always discuss your case with an attorney experienced in debt relief law. These attorneys can service both debt settlement and bankruptcy clients, and can offer legal advice to eliminate debt and avoid legal repercussions.

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