With the online world abuzz with praises (or merits) of debt consolidation services, it might as well be pretty easy to think that consolidating all your different loans under one umbrella loan remains your only answer to all your debt woes. But on deeper contemplation, it might as well be not that a “good idea”. However, it does not mean that you can absolutely rule out the possibility of settling for these services as well. Weighing the pros and cons of this practice, would remain key.
The failure to repay a consolidation loan might as well cost your home. Opting for them only makes sense when you end up paying lesser rates of interest than you were paying before. However, before delving in to its complex pros and cons, let’s understand a bit about its basics. If you are grappling with multiple loans at the present, then you can effectively combine them together, so that the new rate of interest is lower than what you had been paying before. The consolidation loan provides you sufficient money so that you can pay off your remaining debts and owe money to just one lender. Besides lower interest, another major merit of these debt services is that they make it easier for you to keep track of your loans. They can generally be secured on home loans. However, you must be particularly on your guard against a heavier debt burden.
The Scary Stats
In the year 2009, in a post in the website www.daveramsey.com, the writer went on to say:
“A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn’t have a game plan to either pay cash or not buy at all. He also hasn’t saved for “unexpected events” which will also become debt.”
What you can do
Yes, that exactly is the point. Debt consolidation will simply not put you in a good stead if you are not able to adjust your spending habits. It’s going to remain as potent a curse as did your previous loans if you continue with your “overspending” and “under-saving” tendencies. Additionally, if the overall amount that you’re going to repay increases in the long term then you should seriously consider against settling for these loans as well. If you are really sure that you can improve upon your previous financial conditions and afford to repay the loan at the end of the day, then you can opt for them.
It might as well be a little difficult to find these loans today, as they were primarily marketed during the financial crisis a few years ago. But now, there are very few, who actually lend them.
Though the monthly interests are lower, the repayment period might be much higher- as a result of which you might end up paying much more in the long run. So, if you can transfer all your present debts to a low interest or 0% balance credit card, there’s simply no reason for opting for the debt consolidation services. However, your credit rating will play a major role in determining chances of your qualification for these low-interest credit card debts.