What is debt consolidation? Is it right for you? Find out more about debt consolidation and find out what both the risks and benefits of it are.
A debt consolidation program is when you use a big loan froma financial institute to pay ogf the remaining amounts of several other loans.This in return leaves you with one big loan to pay off instead of several withdifferent interest rates. When looking into a debt consolidation program thereis many advantages and risks that can take place through this process. It isimportant to understand the advantages and risks so that you can weigh out ifthis is the best alternative for your financial situation.
The advantages in a debt consolidation program are importantto understand so that you can ensure that this is the best solution for you. Thereare many things to take into consideration the first one is that it reducesyour monthly payments. The second is that is gives you a head start on creditrepair, this is done through allowing you to make one payment instead of manyothers in return giving you one consistent place to make payment. The third isthat it helps prevent you from making late payments. The fourth is that itallows you to seek expert help to get your finances back on track, and thefifth and most significant benefit is that it will prevent creditors fromharassing you and pursuing legal actions which in return is a great benefit ifyou are in too deep in debt.
There are also risks in debt consolidation, the first riskis that it will not automatically rid you of your debt but rather transfer allyour debts into one big payment while paying off all the other debts. Thesecond risk is that it can cause you to fall deeper into debt. This is becauseif you are unable to make payments and still continue to use things like creditcards etc. it will continue to escalate and rack up debt in the long run. The third risk is that you may end up payingmore interest in the end if you have to make smaller payments; this is becausethe interest rate is still there and may require you to pay more at the end ofthe day. It is important to ensure you can make the payments each month to getahead of the game so to speak. The forth risk is that if you have collateral onthis debt such as a home equity loan if unable to make payments it puts you atrisk for losing your home.
Overall debt consolidation has both risks and advantages andit is important to make sure that this is the best alternative choice for you,to help you in the long run, while giving you hope to get your finances back ontrack.