You probably have no plans at all to go into debt. But the truth is that life can be pretty unpredictable, and sometimes, it’s impossible to avoid getting into debt. That’s just the way it is.
The important thing is finding a way to get rid of debt and stay out of it. One way to do that is by getting a debt consolidation loan from a bank or credit union. Debt consolidation loans are a great way to eliminate your debt, but they’re only for some.
However, before applying for a debt consolidation loan, you must assess its pros and cons to help you decide whether it’s right for you. Read the rest of this article to know more.
The Pros Of Getting Debt Consolidation Loans
Debt consolidation loans are a loan to pay off loans, which is why there are many beneficial reasons to get them. These benefits include the following:
1. Save You Money
You may be paying high-interest rates with multiple credit cards and loans. But a debt consolidation loan has an interest rate that’s lower than your other debts, so you’ll save on finance charges over the course of time.
2. Your Debts Are Paid Off Faster
When you have a lot of unsecured debts, it can take a long time to pay them off. But with a debt consolidation loan, you will think of one monthly payment and can get rid of your other debts much faster than if you’re paying them individually.
3. Get A Better Interest Rate
You might not have thought about this, but the interest rate on your debt consolidation loan is probably better than what you’re paying on your other debts. That’s because lenders are more likely to give you a lower interest rate when they know they’ll take all your loans off their books.
4. A Better Credit Score
Your credit score is a number that can affect many aspects of your life. Your credit score affects your ability to get a job, get an apartment or loan, and even how much you pay for insurance rates. When dealing with debt, it can be easy to fall behind on payments—making your credit score drop. But your credit score will improve when you consolidate your loans and start making timely payments again.
5. Get Your Life Back On Track
When dealing with debt, it can seem like there’s no end in sight. But when you consolidate your loans and get rid of all those other payments, you’ll be able to focus on what matters: enjoying life again.
6. Easier To Manage Your Payments
When you have just one loan to pay off, it’s easier to manage your payments on time. You won’t have to worry about remembering all of those due dates and making sure that you don’t miss any payments—and that can save you from late fees.
7. Better Financial Position
As you make payments on your debt, it will become easier to get by each month. You’ll have more money for other things, like retirement savings or a vacation. And if you’re able to pay off some of the loans that are costing you high-interest rates, like credit cards and personal loans, those payments will also go down.
The Cons Of Getting Debt Consolidation Loans
As there are benefits to taking consolidation loans, there are also some drawbacks to consider before taking out such a loan which include the following:
1. Regular Payments Are Involved
One of the most significant drawbacks of debt consolidation loans is that you still have to make regular payments. Adding more may be difficult if you need help to make your current loan payments. You’ll need to find the extra money each month and pay it toward your loan until you pay it off.
2. Proof For Being Creditworthy
Another drawback of consolidation loans is that you may need proof of creditworthiness. Many lenders require you to provide your credit score before accepting you as a borrower, which can be difficult if you’re currently having financial problems.
3. Complex Processes To Get Approved
The process of getting a consolidation loan can also be arduous. For example, lenders may require you to have good credit, high income, or assets before they consider giving you a loan. If your current situation doesn’t meet these requirements, then it’s unlikely that you’ll qualify for a consolidation loan.
4. May End Up Being More Expensive
More so, consolidation loans may become more expensive than other types. For example, if you have a high-interest rate on your current loans, it will likely be even higher when you consolidate them into one new loan. It can strain the reasons why you need a budget and make it harder to pay off the debt in time.
5. Interest Rate Forgiveness Is Not Guaranteed
Another issue with consolidation loans is that they don’t always come with interest rate forgiveness. It means you’ll have to pay off your current loans plus all of the interest accrued over time. If this amount is more than the loan amount itself, you may pay more than what you originally owed.
Consolidation loans are one of the best ways to consolidate your debt. They can be a good option for managing your debt if you face multiple loans with high-interest rates and variable payments. However, they are only available for some, and you may end up paying more than what you originally owed if your current situation doesn’t meet specific requirements. Whether you’re choosing to consolidate your loans or not, it’s essential to understand the benefits and drawbacks of each option. You may find that a consolidation loan is wrong, but it’d be best to find other ways to eliminate your debt burden.