The Pros and Cons of Consolidating Debt

Consolidating debt is an option to consider when you find that you've accumulated more debt than you can repay. When you are in that downward spiral of debt, the situation is made worse with additional penalties and interest charges. (I'm sure the lenders have reasons for increasing the charges when you can't pay the original debt in the first place, but I'll comment on that another time.)

Debt consolidation seems like the way back to financial freedom. But.. there are pros and cons to consolidating debt, no matter what form it takes. Being aware of those will help you decide if it is the debt relief help for your particular circumstances.

What is Debt Consolidation?

Basically, it's a simple concept. Gather up all your multiple debts into one debt and make one payment every month to a single lender.

However for consolidating debt to be helpful, at least one of the following has to occur:

  • either your total monthly payment has to decrease, or
  • the net amount of interest being paid has to decrease, or
  • the actual total debt has to be reduced as a result of the consolidation.

For any of these to take place, your specific debt reduction strategy should be reviewed very closely. Although rare, in an ideal scenario, all three should happen.

Usually the most common result is that your monthly payment is decreased. The advantage to this is you have a much higher chance of being able to pay that one payment consistently each month. It also helps by not piling up more debt through interest and late charges. Knowing you can meet the monthly debt obligation without sacrificing other necessities will allow you to be in a more relaxed frame of mind.

There can however also be a serious risk to consolidating debt. If your payment is too low, some of the psychological factors that led to excessive debt in the first place can rise again. You may now think you have money to spare, causing you to relax too much too soon. If your goal is to become debt free, commitment, concern and healthy determination is vital.

Many plans lower that payment by increasing the life of the loan long enough to cover paying off the entire original amount owed. That means more interest is paid over that longer term. That's fair to the lender, since you do owe the money. But some lenders will settle for less if they know or have good reason to believe they will actually get repaid. Try to negotiate a lower settlement amount, then consistently make the agreed on payments every month. Curadebt is well known for their effectiveness in consolidating debt for those with debt problems.

Losing debt is like losing weight. You have to be consistent and committed to the process of lowering your debt and keep it lowered. That is the key to long-term success.

There are several types of loans available for consolidating debt. Here are a few options.

       Home Equity Loans

       Home Equity Line of Credit

       Zero Percent Credit Cards

Note: You have to be extremely disciplined to use zero percent credit cards to consolidate debt because you are really getting more credit cards. If you transfer the balances from high interest cards to one with zero percent interest, lock the old cards away or cut them up. Then be sure to pay two or three times the minimum monthly payment during that introductory zero percent period. It is the only way this system can work.
Here is more information about these "Teaser Offers" as debt reduction solutions.

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