Debt Consolidation Pros Vs. Cons (Updated as of 2018)

The land of the Free, America! But yet, 11+% of credit card borrowers are behind on monthly payments and basically a slave to debt. Is that fair? Debt consolidation companies are promising to free Americans from debt and give people financial freedom, but in reality, these debt consolidation companies are only looking to make money.

debt consolidation ads on Google

So, what is the key to achieving financial freedom? Well, debt relief, settlement and consolidation programs can help, but make sure to first educate yourself on the pros and cons of each plan, so that you can truly understand what you are getting yourself into and know that it’s not all benefits!

How Credit Card Debt Relief Programs Work & Affect Credit Scores?

3 Biggest Benefits of a Debt Consolidation Loan

  1. If the interest rate and fees on the debt consolidation loan are adding up to less than what you are currently paying, the biggest benefit is that you will save money and have a lower payment. Just make sure to add up the figures with a debt calculator, and not just look at the monthly payment. On a debt consolidation loan, the payment can be smaller than what you’re currently paying, but will you be paying on the loan for the rest of your life? Look at the entire picture and use an actual debt calculator tool like this one here to really add everything up and truly compare side by side, how much you are paying now versus what you’ll pay with the debt consolidation loan.
  2. Have only a single monthly payment, making it easier to manage your debt.
  3. Improve your credit score with a debt consolidation loan. As soon as you get the loan, immediately use it to pay off your existing debts.

3 Biggest Downsides of a Debt Consolidation Loans

  1. You are dealing with your debt problems by getting more debt, does that make sense? If you can save money in interest, as we talked about above, then yes it makes sense. However, the concept itself can be mentally draining. Now you’ve taken on another loan, adding more stress. Wouldn’t it be less stressful if you were to use a debt relief program and reduce your balances? Unfortunately, debt relief programs can hurt your credit score, but looking at the long-term you can develop a plan to rebuild your credit score and save money when using a debt relief program, often making this a smarter route than using a debt consolidation loan and accumulating more debt!
  2. You can end up with more debt and in worse financial shape. More fees, more interest and more debt … Essentially, debt consolidation loans often come with hidden fees, up-front fees and high interest. Unless you use a credit union for a debt consolidation loan (your best option) or use a home equity line of credit with a low-interest rate (another smart move), often debt consolidation loans come with high fees. They entice you with a low payment, but when using a debt calculator you will often see that this is a more expensive route than what you’re currently dealing with. Also, debt consolidation loans are sometimes secured and now you’ve put your property, car or even home at risk.
  3. Applying for the loan itself can lower your credit score, especially if you get rejected for a loan. Now, your credit score went down due to the negative inquiry.

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