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What are the pros and cons of consolidating multiple debts?
You can take help of debt consolidation when you have multiple loans to pay off. There are several consolidation companies that offer consolidation programs with the help of which you can pay back loans/debts in a systematic way. You can also take out a consolidation loan (similar to a personal loan) and repay all your debts at once.
Pros and cons of debt consolidation
• Loan interest rates may get reduced – When you enroll in a consolidation program, the company negotiates with your creditors to reduce your loan interest rates so that the monthly payments become affordable for you.
• Need to make a single monthly payment – You need to make a single payment regardless of whether you opt for a consolidation program or take out a consolidation loan. It is quite easier to manage a single payment instead of paying several monthly installments.
• Late fees may get reduced or waived off – Your late fees or over-the-limit fees may get waived off or reduced if you repay debts with the help of a consolidation program.
• Helps to avoid harassing creditor/collection calls – Debt consolidation helps you to avoid harassing calls from your creditors and collection agencies regardless of whether you choose a consolidation program to repay debts or obtain a consolidation loan.
• May end up paying more – You may end up paying more if you take out a consolidation loan with a comparatively longer loan term. This helps to reduce the interest rates; however, you may have to pay more in comparison to what you’d have paid for each of the loans.
• May accumulate additional debt – You may accumulate additional debt if you continue using credit cards for making payments and not pay the full balance every month.
In spite of the disadvantages, debt consolidation can be considered as the best option to pay off debts when you have multiple loans to repay. Moreover, it doesn’t negatively affect your credit score regardless of whether you choose a consolidation program or take out a loan to consolidate bills/debts.