Christopher Lee

Before you consider the pros and cons of debt consolidation loans, you must understand your situation is unique and what may work for one person may not work for you. You need to find a debt consolidation loan for your unique financial situation. Before applying, make sure you understand the benefits and draw backs of using these loans. How much debt you have, the type of debt it is and the desire you have to be out of debt (or not) are all factors that will help determine the best debt solution to take.
Look At The Pro’s
The pros of debt consolidation loans vary depending on the type of loan you apply for. However, here are some aspects to think about.

• Combining all your debts into one repayment. You may have multiple debts to repay, which means you have multiple debts you need to remember to pay. The more debts you have the more likely you are to miss a repayment. With one payment it is much easier to manage your debt repayments.

• Getting a lower interest rate. Imagine calling your credit card company to let them know you are getting a debt consolidation loan for your balance that is half what they are charging you. This is especially true for many home equity loans, or other secured loans. In the long term, you could be saving thouands of dollars.

• You may qualify for lower monthly payments on your debt consolidation loan. For many people consolidating all their debts together allows them to make one payment that is lower each month. Which then allows you to pay more than the minimum payment each month and therefore saving even more money in the long term.

These benefits make debt consolidation worth considering however there can be draw backs.
Consider The Cons
Consider how these would affect you.

• It is easy to get into even more debt. As you are no longer repaying multiple debts and have eliminated the debt from your credit cards, it is easy to slip back into bad spending habits. Although a debt consolidation loan may help, you need to be responsible with your money in general to stay out of debt.

• You could lose assets. If you get a home equity loan to consolidate your debt and find yourself in debt again, your home could be at risk. Because the home is backing up the value of the money you borrowed, lenders can take the home from you if you default on the loan.

• You could hold debt longer. Depending on the type of debt consolidation loans you apply for, you may be repaying that debt for a longer amount of time. For example, a home equity loan could be repaid over ten, fifteen or more years, which would extend the debt repayment. Sometimes you could be paying more in interest because of the extended amount of time. However, a way to avoid this is to pay off your debt more than the minimum repayment so you can pay it off sooner.

The cons of getting a debt consolidation loan should be given careful consideration.

What Is Right For You?
Are debt consolidation loans the right option for you? For many people, they do help to get out of debt quickly, but are they right for you? Consider your financial situation, your likelihood of getting into debt again and the benefits of having just one loan to pay. Take steps to protect yourself too, such as repaying debts ahead of schedule and keeping interest rates low. Doing these things can protect you in the long term.

Fox Symes is the largest provider of debt solutions to individuals and businesses in Australia. Fox Symes helps over 100,000 Australians each year resolve their debt and take financial control.