We buy on credit for many reasons. Among them, it’s easy, convenient and can earn us rewards. But those benefits disguise issues that can become complicated when payments come due. Staying current on a variety of different debts — each with its own due date and interest rate — month after month can become very cumbersome, it can even leave room for payments to accidentally slip through the cracks on Consolidation Services.
Many borrowers find when they’re staying current on what they owe by paying the minimum amount due or more, their efforts seem to barely make a dent in their balances. This is due to high average interest rates on credit cards and the compounding nature of interest. This is where a solution like debt consolidation holds appeal. Even the name suggests a more streamlined approach to handling debts.
Here are some leading pros and cons of debt consolidation services to keep in mind.
Pros of Debt Consolidation Services
Consolidation Can Simplify Your Payments – One of the most appealing aspects of consolidation is the ability to combine multiple debts into one monthly payment. If given the choice between juggling multiple credit card balances at the end of every month or making one single, fixed payment to a lender — well, the choice seems rather obvious. This eliminates one of the trickiest aspects of handling revolving credit, which is that monthly payments can be inconsistent from month to month.
You Could Pay Less in Interest – On average, consolidation interest rates tend to be lower than interest rates on credit cards. This creates an opportunity to save money by wiping out high-interest debts with a lower-interest debt. Be sure to factor in the length of the loan to make sure you will actually end up saving money over time.
You’ll Know How Long It’ll Take to Pay Your Debts – With consolidation, you’ll operate on fixed monthly payments for a preset amount of time — usually a few years. This typically helps you track your progress and anticipate the monthly expense better than managing various credit cards.
Cons of Debt Consolidation Service
Interest Rates Are Dependent on Credit – The higher your credit score, the more likely you are to get approved for a lower-interest consolidation loan. Lenders view borrowers with average or poor credit as riskier, so they are more likely to receive quotes containing higher interest rates — this makes it more difficult to save money by consolidating.
As outlined on the site for debt consolidation services by Bills.com, it is possible to get a personal loan for bad credit from certain lenders — but you can expect the interest rate to be high. Another alternative might be getting a cosigner on the loan or finding a secured loan against which you put up an asset as collateral, thereby lowering your risk in the eyes of lenders.
Secured Loans Carry Added Risk – Speaking of secured loans, there are downsides to this approach as well — despite the fact it is an option for borrowers with poor credit to get approved for a loan. Violating the terms of a secured loan by missing payments may grant the lender the ability to seize your property.
So, not only does defaulting on a secured loan cause problems for your credit score for years to come, but you could lose your home or your car as well.
Consolidation Alone Will Not Change Your Spending Habits – Consolidation can provide an avenue for simpler, cheaper repayment of debts. But it’s not a magical solution that’ll also change spending habits. When your credit card balances disappear seemingly overnight, it can be tempting to feel like you’re free from debt — and start inching up those balances yet again. This time, however, you also have a monthly debt payment to juggle. So, successful consolidation also requires awareness about your spending patterns and a commitment to do whatever it takes to ensure you can repay your consolidation loan in full.
Debt consolidation services offer solutions with pros and cons; it’s your job to weigh them to decide if it’s the right path for you.
