People with multiple debts would often see debt consolidation as the best solution to managing them wisely. Like any other big financial decision, choosing this alternative has pros and cons. This article will show you its two sides so you can make the right decision for yourself. Let us begin by defining what debt consolidation is.
Understanding Debt Consolidation
If you have loans, credit cards, and other debts, debt consolidation is one of the solutions recommended by many financial institutions. In debt consolidation, you acquire one big loan to pay off the rest of your existing debts. Doing so would leave you with only one debt to pay for, helping you manage it better.
Debt consolidation brings many advantages, but there are also disadvantages to know. To better understand if it is good for you, here are some benefits you will get when you opt for debt consolidation.
Why You Should Consider Debt Consolidation
1. You Only Have One Debt to Worry About
Consolidation means combining all of your debts. When you have only one debt to pay, you only have one thing to worry about and forgetting to pay your monthly dues would be rare. It also means that you are only paying for one interest rate instead of multiple of them. It will be much easier and more practical for you.
2. Every Payment Is Fixed
Gone are the days when you deal with a rate that could change depending on the market status. With a debt consolidation in place, you know that the interest rate you are to pay is fixed every month or every year. That means you have an idea of how much you owe and when you should pay.
With fixed payments, you can budget your money better and finish paying off your debts more quickly. It will give you peace of mind and help you build a routine to address all your financial worries fast.
3. You Can Stretch Out Your Payment Term
Going for the debt consolidation option allows you to stretch your payment terms, which would be a good option if you are looking for a way to lower your monthly payment. However, that also means that you could pay longer and maybe more. Still, you do not have to worry so much about your monthly dues.
Why You Should Rethink Acquiring Debt Consolidation
Here are some downsides of getting debt consolidation:
1. You Could End Up Feeling Freer Than You Should
There is no better feeling than seeing that you are almost debt-free! However, understanding that status also means that you could acquire more debt, knowing that you are managing so well with the debt consolidation option. This con is completely dependent on how you manage your urges to borrow money, but it is a risk you should put in mind.
2. You Could End Up Paying More
This disadvantage can take place if you decide to prolong your payment terms. The longer you pay, the longer you also add interest in your overall dues, making your total debt bigger than it should. It depends on which you prioritise more: paying off your debt quicker or paying smaller monthly payments.
3. You Could End Up Hurting Your Credit Score
Should you fail to pay your monthly payments, you are bound to get a bad record on your credit score. That is the consequence you agreed on acquiring debt consolidation. However, if you stay consistent with paying your dues, you will have no problem with this concern.
Debt consolidation is helpful for people looking for ways to manage their debt, including the unstable and multiple interest rates they pay for their many debts. It can provide people with many advantages, such as getting a fixed rate and a fixed fee due every month. But it also gives risk to people who do not know how to control their urge to acquire debt or fail to pay their monthly dues.
If you think you would benefit from its advantages, then maybe it is the best solution for you. Wealthy You is one of the best debt consolidation companies in Sydney that can help you simplify your financial situation. Contact us so we can explain the concept to you in detail.