Benefits and Drawbacks of Debt Consolidation
Benefits of Debt Consolidation
Some of the main benefits of Debt Consolidation are:
- Reducing your set repayments to an affordable level is the first and most significant benefit of debt consolidation leaving you more money to live on;
- Stop accumulating penalty interest for late or missed payments;
- Consolidation should also get the debt collectors ‘off your back’;
- Having a single repayment is easier to manage than a multitude of debts;
- Debt Consolidation can assist you with getting debt free sooner;
- In some cases debt consolidation can prevent a default or a bad credit record;
- Will force you into the discipline of budgeting;
Drawbacks of Debt Consolidation
If you have a problem with controlling your spending, a debt consolidation loan may actually contribute to your downfall. The problem is that once you consolidate, you must discontinue the spending behaviour that got you into trouble in the first place. If this is not done, the debt consolidation will only facilitate you getting deeper into debt.
Refinancing your debts into a mortgage, does assist with reducing monthly repayments, however it results in you paying interest on these debts for a longer period of time, so while repayments are reduced the overall amount you end up paying for your debts does go up.