Debt Consolidation Pros and Cons

Normal consumer debt consolidation strategies often involve using one large loan, preferably with favorable terms and interest rates, to repay all existing smaller outstanding loan balances. This strategy allows for one single payment due on one large principle balance, but in favorable cases, the terms of the loan, including the interest rates provided, are preferential to those of the older, smaller debt obligations.

Pros of Debt Consolidation

Depending on a number of factors, the pros of debt consolidation can prove highly beneficial to a given consumer. The main concern with debt consolidation strategies is ensuring a consumer understands all aspects of their existing debt repayment policies, the terms and conditions of the proposed large debt arrangement, and the cost-benefits of these two elements in conjunction with one another. The following are some notable benefits of debt consolidation, which may prove applicable in some consumer debt scenarios, including:

Consolidating debt payments into a single, convenient payment
Garnering favorable interest rates
Transitioning from variable interest rate debts to a single, fixed rate
Negotiating settlements on smaller debts, and in turn, creating smaller total principal amount owed on all outstanding debts
Avoiding default, delinquency, and other penalties associated with late or non-payment, including liens, wage garnishments, and other forms of asset seizure in the case of secured debts

Cons of Debt Consolidation

Aside from erroneously entering into an unfavorable consolidation loan agreement, debtors may incur several negatives, which if not accounted for before attempting to consolidate, can cause problems. These potential "cons" or downsides to debt consolidation include:

Entering into a consolidated loan with unmanageable terms, including loan length and payments
Entering into loan agreements with adjustable or variable interest rates
Penalties and fees for early termination of smaller outstanding debts, which will drive up consolidation costs
Closing costs and other fees associated with consolidation loans
Securing assets to a consolidated loan, which if at a later date enters into default, can cause loss of these assets, which are typically residential property and other assets
Feasibility of actually being able to continue to meet financial obligations in addition to terms of consolidated loan

Getting Legal Help with Debt Consolidation

As a consumer, the intricacies of debt settlement and consolidation may prove overwhelming. This is understandable, but by seeking legal counsel, consumers can protect their financial interests in an informed and strategic manner. If you are considering debt consolidation, consulting with an attorney can not only prevent entering into an unfavorable consolidation agreement, but also, may allow for negotiated settlements on existing debts, which in turn, will lower the overall principal amount owed on a future consolidation loan.

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