Pros and Cons of Debt Consolidation

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Struggling with debt is overwhelming enough on its own, but looking at ways to get out of debt can be almost as difficult. A quick search shows you there are a lot of different options to resolve your debt. So, how do you choose the right one?

To find the debt relief option that’s right for you, it’s important to understand how each method works as well as the benefits or disadvantages of each. Debt consolidation is a popular method to make managing debt and paying it off easier.

How does debt consolidation work? What are the pros and cons of debt consolidation, and how do you choose the right consolidation method? Read on to find out.

What Is Debt Consolidation?

The basic goal of debt consolidation is to roll multiple debts into one easy-to-manage monthly payment.There are three general methods for consolidating your debt:

  • Consolidation Loan: To consolidate debts, you take out a new personal loan from your bank or other lender. The loan amount is usually for everything you owe (ex.your credit cards, medical bills, and payday loans). By merging multiple smaller debts into one, a personal loan can help you to qualify for lower interest rates and fees than you currently pay.
  • Credit Card Balance Transfer: In this consolidation method, you open a new credit card that has a favorable introductory interest offer. For example, you may find a card that offers a 0% APR interest on balance transfers for the first 12 months. You transfer your existing credit card balances to the new card and have 12 months to pay off your debt before you’re charged interest.
  • Consolidation Through a Debt Consolidation Company: By working with an experienced debt consolidation company, you can potentially lower the total amount you owe. An account is set up for you, into which you’ll deposit a monthly payment. While you’re making those deposits every month, a negotiator will contact your creditor and negotiate with them on your behalf. After negotiations, you should have a lower total debt amount (that’s called a “resolution amount”). When you’ve saved enough in your account to cover the resolution amount, you’ll use that money to pay off your debts.

Debt Consolidation Advantages and Disadvantages

Deciding if debt consolidation is right for you can be a difficult choice. Carefully consider the pros and cons of each method of debt consolidation to figure out if it’s a good option for your situation.

Benefits of Debt Consolidation

  • Simplified Debt Management: Consolidated debt means you only have to worry about one payment each month, instead of multiple payments, amounts, and due dates.
  • Pay Off Debt Faster: If you consolidate your debt, you’re much more likely to pay off debt sooner than if you continue to only make the minimum payment.
  • Fixed Payments: Most consolidation plans give you a fixed payment each month. With a predictable payment, you can create a budget that leaves room for other expenses or needs.

Drawbacks of Debt Consolidation

Most of the cons of debt consolidation depend on the method you’re using. What could be a drawback for a credit card balance transfer may not be an issue for consolidating through a debt relief company.

  • Consolidation Isn’t a Quick Fix: Debt consolidation can take anywhere from a year up to several years. While it’s not a quick fix to get out of debt, the length of time it takes to pay off consolidated debt could actually help you build strong financial habits.
  • Temptation to Spend: If you use a loan or new credit card to consolidate debt, you’re paying off your maxed-out credit card balances with the new credit. You could end up spending more money on the account you just paid off, digging yourself into deeper debt.
  • Consolidating Doesn’t Always Reduce Your Debt: When you consolidate debt with a loan or credit card, you’re not actually reducing it. You’re simply moving the debt to a new location. However, consolidation services through a debt consolidation company may actually reduce the total amount of money you owe.

When Should You Consider Debt Consolidation?

Debt consolidation is a great strategy for making debt easier to manage, but it’s not the best choice for everyone. If you’re thinking about debt consolidation, consider these questions to see if it might be a good choice:

  • Are you worried you can’t pay back your debt with your current payment plans?
  • Have you started considering an alternative to filing for bankruptcy?
  • Are your ready to make a financial commitment to pay off debt?
  • Is the stress of multiple debts, creditors, and due dates causing you mental or physical pain?

How Accredited Debt Relief Can Help You Consolidate Your Debt

The pros and cons of debt consolidation services are often more favorable than other types of consolidation methods. With an A+ rating and accreditation from the BBB, Accredited Debt Relief has helped people just like you consolidate debt and get their finances back on track.

Accredited Debt Relief can help you pay off your debt quickly, so you can finally take the first step toward financial freedom. Get a free consultation today!

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