Debt Consolidation Advantages and Disadvantages

Debt Consolidations means taking out one big loan to cover and manage all your little loans. Debt consolidation can work in many cases but is not really a good idea in others.

Before Considering a Debt Consolidation Loan

Have a look at what other options you have on offer.

1. Borrowing from friends or relatives
2. Speaking to current creditors to see if you can rearrange your payments or what other options you have with them
3. Making sure you are making the most of your existing options such as: overdraft facilities, personal loans etc

Advantages of Consolidation Loans

1. Put you in charge of your finances
2. Pay off priority debts
3. Single Monthly payment is easier to manage than many smaller repayments which can be harder to keep track off
   
4. You will know when you will pay off all your debts
5. You won't fall behind on your payments
6. You can avoid getting a bad credit rating
7. All over interest rate may be lower, be wary of companies stating that they can reduce your all over debt, it is only the interest rate that they may be able to reduce, the debt you have to still pay off
8. Avoiding bankruptcy
9. Stop receiving calls and letters from debt collectors immediately

Disadvantages of Consolidation Loans

1. Extra fees for setting up and managing loan
2. If loan secured against your home you could be at risk of losing your house if you cannot repay
3. May end up paying overall more in interest
4. These types of loans are based on risk, if you pose a big risk to the lender you may get a loan with an extremely high interest rate or be denied a loan all together
5. You need to have collateral to get these types of loans, if you do not have collateral then usually debt consolidation loans will not be offered to you
6. Not all companies that offer these loans have your best interests at heart. Be wary of those with high fees and hidden charges.