debt consolidation pro and cons

When we are talking about debt consolidation programs the first and foremost thing to consider of course is whether or not you have found truly affordable debt consolidation. If it isn't going to be affordable to you, why would you want to go through it anyway. It really won't help. Nonetheless, let's assume that you have found a plan that fits well into your budget and want to give it a go. We really need to weigh the pros and cons of this decision to make sure that it is truly the correct thing to do.

so what are the positive aspects of consolidation? Let's take a look at the key debt consolidation pros facing people looking to this solution:

Lower your monthly payment - This is really where most people start. If you pay all the separate loans out at their minimum levels it can get to be a fairly large bill at the end of each month. In debt consolidation we are looking to trim those into one key loan and then pay that off. This often allows for a lower monthly payment and some breathing room.

Better rate - Often given that the debt you have is spread out over many debt vehicles such as credit cards and the like it can be a great way to get a better rate across all of your debt.  Especially when the majority of your debt is on credit cards.

One loan provider - rather than dealing with multiple payment times, addresses and companies, debt consolidation allows for one centralized company and loan for all your debt needs.

Extra money at the end of the month - this provides great peace of mind and wiggle room for all that life has to offer.  If we are truly going paycheck to paycheck then we are invariably going to fall to one of lifes potholes.  Emergencies and general repairs come up far more often than most people are willing to admit and that can be a devastating blow.  Debt consolidation can allow for a small emergency fund to be created. 

Young people can especially realilze benefits - generally speaking young people earn the least and are likely to increase their stake at their jobs the quickest.  If the debt you currently have is stifling lower the payment can give wiggle room now and provide a great way to knock it out entirely in the future when you get your pay increases.

So those are all great pros listed above, how about the flip side. Here are some key debt consolidation cons to keep in mind:

Hurt your credit score - if you continually do this or if you use a service that goes about it the wrong way it can adversely hurt your credit score.  This doesn't seem like a big deal until you go to try and purchase a home or finance a vehicle.  Then it will sting more than you know.  Be cognizant of any bad marks hitting your credit score. 

Doesn't cure the problem - if you aren't willing to change the ways that you got into debt in the first place debt consolidation will only delay the inevitable.  If you fall into the same traps and don't increase your wages in the meantime you are just going to be in the same place in a few years time.  Only your first consolidation loan will still be there and you will have accrued more debt.  Make sure to have a solid plan to change your habits and/or earning ability.

Length to loan payoff increases - often the reason people go with consolidation route is to lower their payments.  This is great, but usually entails a lengthening of the time to pay the loan off as compared to the current state of the state.  Just be sure that you are willing to take on a longer time horizon or have a plan in place to start knocking more down in the not too distant future.

More interest paid - if you do take longer to pay off the loan you are likely to be paying more interest over the full life of the consolidated loan than if you were to go with the status quo.  This isn't necessarily a bad thing if you have that money you saved earmarked for other things.