Debt Consolidation Loans – The Pro’s and Con’s

Eric | Jul 28, 2009 | 1 comment

You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Make the minimum payments easily cause your distress and certainly are not in debt. What would you do? Some people think that loans to debt consolidation is the best option. A debt consolidation loan is a loan that many other loans or credit lines to pay.

I’m sure you’ve seen the advertisements of smiling people who chose to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders. But are consolidation loans debt a good deal? We will explore the advantages and disadvantages of this type of debt solution.

Pro’s
1. A payment against many payments : The average citizen of the United States pays 11 different creditors every month. Make a single payment is much easier than determining who should be paid how much and when. This makes managing your finances much easier.

2. The low interest rates : Since the most common type of loan debt consolidation loan is at home, also called a second mortgage, interest rates will be lower than the debt ratio of most consumers interest. Your mortgage is a secured claim. This means they have something they can take from you if you do not make your payment. Credit cards are unsecured loans. They have nothing except your word and your history. That being the case, unsecured loans typically have higher interest rates.

3. Lower monthly payments : Since the interest rate is lower and because you have one payment vs many, the amount you pay per month is typically decreased significantly.

4. Only one creditor : With a consolidated loan, you only have one creditor to deal with. If there are problems or questions, you just have to make a call instead of several. Again, this makes the simple control of your finances much easier.

5. Tax incentives : interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.

Sounds good, does not it? Before you run out and get a loan, look at the other side of the picture – the cons.

Con’s
1. Easy to take on more debt : with an easy load to bear and more money remaining at the end of the month, it might be easy to start using your credit card or continue again spending habits that you obtained in this debt credit card in the first place.

2. More time to bear fruit, most mortgages are Variety 10 to 30 years. This means that rather than spending a couple of years out of debt credit card, you will spend the duration of your mortgage out of debt.

3. Spend more over the long term even if the interest rate is less if you take the loan over 30 years, may end up, you spend more than you would if you had kept each individual loan.

4. You can lose everything : The loans are secured loan consolidation. If you do not pay credit unsecured loan, gives you a bad rating but your home is always safe. If you do not pay secured loans, loan guarantees they would all take. In most instances, your home.

As you can see, consolidated loans are not for everyone. Before making a decision, you should look realistic pro’s and con’s of whether the right decision for you.