Debt Consolidation Pros and Cons

Do you like to learn about new and interesting things about Debt Consolidation? If so, then this article will be right up your alley!

Many people find that over time they have accumulated more debt than they can repay. When that happens, there is a reinforcing downward spiral. The failure to repay the debt leads to additional interest charges and penalties, making it still harder to repay the total payable.

One frequent suggestion for breaking this vicious circle is to employ debt consolidation. For thousands, this has seemed like the way out, the way back to economic wellbeing. But there are pros and cons to debt consolidation, no matter what form it takes. Being conscious of those will help you choose if it is the salvation in your particular circumstances.

Keep reading further to learn how this topic can benefit you, as the rest of this article will supply you with the needed information.

First, what is 'debt consolidation'? At base, it's a simple proposition. Collect all your numerous sources of debt into one debt and make a sole payment every month to a sole debtor.

But for that to be helpful, some things have to take place at once. After all, whether you pay $150 + $50 + $25 to three debtors or $225 to another it's the same amount. With online bill payment it isn't even essential these days to make out three checks. You aren't even saving on postage stamps!

In order for debt consolidation to be effective one or more of the following has to happen: (1) either the full monthly payment has to reduce , or, (2) the net amount of interest has to reduce, or, (3) the actual full debt has to go down as a result of consolidation. Which, if any, of these take place depends on the precise debt consolidation plan you have planned.

In the perfect case, which seldom happens, all three take place. The most frequent scenario is that the monthly payment is lowered. This has numerous advantages to the debt ridden. When the payment is lowered, you have a much higher chance of being able to pay it consistently.

That helps stop piling more debt (interest and late charges) against existing debt. You also have a much more relaxed frame of mind, knowing you can meet the monthly debt obligation without sacrificing other desired stuff.

The danger is that if the payment is too low, some of the psychological factors that led to extreme debt in the first place can rise again. Thinking you have bags to spare can cause you to relax too much too rapidly. Continual anxiety is not healthy, commitment and concern are - if your goal is to become debt free.

Unfortunately, many plans reduce that payment by extending the life of the credit long enough to guard paying off the full original amount payable. That leads to more interest paid over the long term. That's fair to the lender, while you do owe the money. But some will settle for less if they have good reason to believe they will actually get repaid. Try to negotiate a reduced settlement, then consistently make the agreed on payments every month.