Pros and cons of credit consolidation loans – Know the consequences before deciding

Consolidation Loans

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Debt consolidation occurs when a debtor who owes an amount that is more than $10,000 chooses to roll or combine a number of short term unsecured debt obligations into a single master loan. Taking out a debt consolidation loan is not a matter of joke as there are certain considerations that you need to take into account. As everything has got its own advantages and disadvantages, the debt consolidation option is not an exception. Before you opt for this debt relief option, you should educate yourself on the pros and cons. Read on the concerns of this article in order to know the pros and cons that are associated with debt consolidation.

The Pros of consolidating your debts

Brings back peace of mind: As the debtor is able to combine his debts into a single monthly payment and can repay with ease, it brings back the lost peace of mind of the debtor. He can again think of living a normal life that is devoid of all the harassing creditor calls and the dunning notices.

Reduction of the interest rate: Through debt consolidation, you can lower the interest rate that you were paying on the credit card accounts. Whether you take out a debt consolidation loan or enroll in a program, the interest rates will be revised and therefore this will help you reduce the monthly payments too.

The repayment term will be extended: The repayment term of the debt consolidation loan will also be extended throughout a longer period of time and this will certainly revise the monthly payments. Since the principal payments will be stretched throughout a longer period of time, the debtor will save a considerable amount of money every month.

Single monthly payments: Instead of making multiple payments to multiple creditors, you just have to make a single monthly payment towards the credit consolidation loan. This will relieve you of the hassles of remembering multiple due dates on which you have to make the monthly payments.

Boosts your credit score: As the credit score plays a vital role in defining the possibility of the borrower to get a loan in the market, you should always protect your credit score. Through debt consolidation too, you can increase your score and get back on track.

The Cons of consolidating your credit card debt

You won’t get a loan with poor credit score: When you don’t have a good credit score, it is almost impossible to get a loan as the lenders will be hesitant in lending money to people who aren’t able to repay on time.

Choosing the wrong loan might do more harm than good: If you don’t shop around and choose the best loan in the market, you might end up choosing a loan that will do more harm than good. Choose the loan that offers low rates so that you can ultimately save a lot of money at the end of the deal.

Therefore, when you’re wondering about taking out a credit card consolidation loan, you should opt for credit card debt consolidation. Consider the pros and cons so as to take an informed and measured decision.

About Kevin Williams

Kevin works as a independent consultant, helping people improve their financial situations. The author has a BS and Masters along with years of experience with credit cards, techniques for improving individual credit and life.

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