When facing financial stresses, it can be important to understand your options. Consolidation of debt is one of the more savvy ways to handle debt and simultaneously free up money at the end of the month, though it is important to understand both the pros and cons of a debt consolidation loan before making any decisions.
A debt consolidation loan is taken out when a consumer wishes to merge all their debts into one payment. The loan is used to pay off current creditors and close accounts, after which the only debt that remains is the loan itself. A debt consolidation loan can have a fixed interest rate, and therefore make budgeting monthly expenses easier.
Although it may take longer to pay off a loan for consolidation of debt, it can free up a lot of money at the end of the month, increasing your quality of life and ability to purchase items cash.
Unlike debt counselling, a debt consolidation loan will not affect your credit score, though, depending on your credit history, it may not be so easy to secure the loan. If a debt consolidation loan cannot be obtained, the next best solution is a debt counsellor.
Consumers should only consult a debt counsellor if they are no longer able to pay their monthly debts in time. Even if debt is being managed consistently and thoroughly, a loan for consolidation of debt may still be a good idea because unlike store accounts and credit cards, the interest rates are considerably lower, and the temptation to spend the money already paid back is no longer there. There is no revolving credit with a debt consolidation loan.
Always keep in mind that a debt consolidation loan is not more debt, but a conversion of existing debt into a more manageable structure.