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All You Need To Know About Debt Consolidation

Mar 20, 2008
Are you in debt? You may have debts from 5 credit cards. And may even have some personal loans. Do you have a feeling that you cannot afford the minimum payment every month? You may think of debt consolidation in this case.

In fact, some people, who are also in debt, may think that it will be the best option for them. Yes it is true that to some extent it may help since it can lead to a lower minimum payment each month. However, before you decide to go for debt consolidation, you should know what the advantages and disadvantages are.

First of all, let us talk about the advantages. The number on advantage is that you will only need to deal with a single payment each month after debt consolidation. However, if you do not go for a debt consolidation, you may need to deal with 10 different creditors if you have a few loans and credit cards. This will probably help you to handle your debts in an easier way.

As discussed, the minimum monthly payment will probably be lower after debt consolidation. The main reason it that the interest rate will usually be reduced after debt consolidation. The interest rate of credit cards can be as high as 20% p.a. For example, if you go for a second mortgage, the interest rate will be significantly lower. And as a result the monthly payment will also be significantly lower.

Of course there are also some disadvantages regarding debt consolidation. After the consolidation, you may find that you can manage your debt a lot easier. And after months, or a year, you may start using your credit cards again. And this will certainly lead to some new debts.

Besides, debt consolidation can also be something risky in a sense that the loan will usually be a secured loan. This means that you are borrowing the money against your assets. One of the most obvious situation is your second mortgage. You are indeed borrowing against the value of your home. If you are unable to repay, you may lose your home. And this can be more problematic than before.

From the above, you will know that there are both pros and cons for debt consolidation. The key is that you have to think about it carefully before you may the decision. As a small piece of advice, you should also try to cut all your credit cards after debt consolidation so that the risk of having new debts will be a lot lower!
About the Author
The author has great interest in finance. You can check his blog on Financial Planning and Insurance Tips . Be sure to check Individual Health Insurance or Family Insurance and Debt Consolidation IVA .
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