วันเสาร์ที่ 14 กุมภาพันธ์ พ.ศ. 2552

Is Debt Consolidation a Good or a Bad Idea?

Is Debt Consolidation a Good or a Bad Idea?

By: Melanie Mathis

For people in need of debt relief, debt consolidation is often the option considered. Debt consolidation is simply combining all your debts into a single loan so that instead of paying several creditors, you’ll only be paying a single creditor. Is debt consolidation a good or a bad idea? To answer this question, let’s take a look at the advantages and disadvantages of debt consolidation,

Advantages of Debt Consolidation

* Paying your debts is a lot more convenient. Because you’re only paying one creditor, you’ll have an easier time tracking your payment schedule and submitting your payments.

* Budget your monthly expenses more efficiently. Since you’ll only be dividing your monthly budget between your expenses and your debts, it will be a lot easier to manage.

* Lower your interest rates. Since you’ll be paying just one creditor, the interest rates of your debts would also be significantly lower.

Disadvantages of Debt Consolidation

* There is the risk to incur new debts again. People who consolidate debts tend to use their credit cards again once their outstanding balances has been paid off. Paying a single debt each month makes it seem like you don’t owe much at all and you still can afford to incur new debts.

* A debt consolidation loan is technically a second mortgage. Since a debt consolidation loan is secured on your home property, it is just like a second mortgage. It can take you a long time to be entirely debt free.

* Lower interest doesn’t necessarily mean less payment. Yes, a debt consolidation loan will lower your interest rate but since it is a long-term debt, if you calculate your repayments, you could be spending more in the long run.

* You run the risk of losing your home. This is the most serious factor about getting a debt consolidation loan. If you still fail to keep up with your debts, you end up losing your property. Obviously, once you get into a debt consolidation, you need to be aware of this risk and do all you can to make sure you will never delay or miss your monthly payment.

Would You Go for Debt Consolidation?

As you can see, there’s more to debt consolidation than just rolling all your debts into just one payment. If there are other ways to get out of debt without getting a debt consolidation loan, why not consider it? If you really feel helpless about your situation, seek credit counseling from a trusted non-profit credit counseling group especially if you have trouble controlling your spending.

Bear in mind that debt consolidation will only work if you can perfectly keep up with your monthly payments. If you’re still unable to make your payments after consolidating your debts, then you’ll be facing a more serious dilemma and that is losing your home.

Don’t rush into debt consolidation without considering the responsibilities and consequences that comes with it. Remember, debt consolidation comes with adjusting your lifestyle and finding ways on how to handle your finances more efficiently.

About the Author Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of NHBS, Inc such as their continuous effort in giving out Free Credit Repair and Building Ebook. NHBS also has a list of recommended Debt Consolidation Companies. Copyright 2009.

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