In our world of consumption, being dependent from debts isn’t something extraordinary. A recent survey has shown that an average American can own a credit of approximately 10,000$. It does not matter which institution or specific person lent you this money, the problem remains the same: the more loans you take – the more complicated it is for you to control the payment process.
One of the ways to help you organize your loan payments is turning your multiple debts into a single one. This procedure is typically called as a debt consolidation. This means, each of your loans, regardless of its type and the lender, can be easily consolidated. Even if you apply for online payday loans, they will still include this debt in your list. However, can we actually admit that this procedure is an ultimate solution for everyone?
Let’s go over some most common risks and benefits of consolidating your loan to help you make the best decision.
Debt Consolidation Loan: What Are Your Risks?
All right, so you have high expectations about consolidating your loans, thinking as if it will significantly influence your debt situation for the better. In reality, though, consolidating your debts is nothing more than turning your multiple loans with all of their remained interest rates into one big chunk of a debt with the additional interest rate.
Even if your debt consolidation company sets you lower monthly payments, it does not mean you will pay less. In fact, you’ll pay much more of total interest because of an extended period of your loan repayment. Therefore, say no to the longest repayment term. Respectively, try to choose the maximum amount of your monthly payment that you can easily afford.
Your financial stability depends on your self-discipline, especially when it comes to consolidating your debts. Here is what happens: as soon as you consolidate everything into one loan, your debts are cleared out. With all of your “unused” limits on your credit cards, you may feel “fake freedom”. But the key word in the last phrase is not the “freedom”, but rather that it’s “fake”. People are tempted to use their credit cards again and again, so they start collecting more debts. Surely, their spending goes beyond their financial affordability to make regular monthly payments.
But who wants to live on the verge of default? None of us. Therefore, it is important to teach yourself self-discipline and self-control. Put all of your efforts and means to finish your loans first and then try to switch to a safer option – a debit card.
Debt Consolidation Loan: What Are Your Benefits?
We won’t be so out-and-out about debt consolidation loans because they still have some advantages to emphasize on. First, this is a great way to make your monthly payments lower if you suddenly felt like you cannot afford to pay that much. If you extend the repayment period for a little longer, you wouldn’t have to pay an extra interest.
Not only is a debt consolidation necessary when you want to change the monthly payments. In many cases, people want to organize all of their debts into one clear payment system. Debt consolidation is a good option for those, who want to reduce the amount of bills one has to pay every month and make budgeting simpler. If you’ve consolidated your debt, you will have only one bill to track and it is less likely that you will forget to pay that bill. Managing one becomes much easier than thinking of controlling five or more loans at one time. Moreover, it will help create a good payment history, which might result in other benefits (a good credit score, for example).
Finally, people think that most debt consolidation agencies offer terrible loan terms that are very unprofitable for consumers. However, the market is full of offers from different companies trying to get as many clients as possible. Therefore, many of them offer favorable terms that you can totally make profit of.
As you see, an experience dealing with a debt consolidation loan can be different and most of this experience depends on your own attitude, responsibility and self-control. Remember: you are the one who decides whether to face the risks or enjoy the benefits.