Debt Consolidation Pros and Cons List

If you are burden with credit card debt, you probably already know that there are many programs available for assistance.  One such program is debt consolidation.  In debt consolidation you are taking out a single loan in order to pay off the existing credit card debts that you have available.  Below is a list of the different pros and cons of debt consolidation.

PROS

Lower Monthly Payments- Your monthly payments will decrease if you get your debt consolidated because of the lower interest rate.  You should have extra money available at the end of every month because of the savings.  The big choice you have to make is what are you going to do with that extra money?

Lowered Interest Rates- You will get a lower interest rate if you get a home equity secured loan from the bank.  Because the loan is secured, it means that the banks bear less risk; therefore they are willing to give you a lower interest rate.

Single Payment- Your debt will not be spread out to multiple credit cards and other debtors.  It will be a simple payment every month.  The benefit of this is it allows you to focus on exactly how much you owe, and how you can pay it off every month.

Tax Deductions- When you take out a home equity loan, you are allowed to write off the interest payments in tax deductions.  This means that not only will you have a lower interest rate, but you can also you the interest you do pay as a tax right off.  With credit cards you can’t write off the interest rates.

CONS

Could More Expensive- Although you may have a lower interest rate and monthly payments, the loan may be taken over a longer period of time, which means you could end up paying more in the end.  This obviously depends on the terms of your home equity loan that you would take out.

Could Create More Debt- With all of your credit cards paid off in full, what are you going to do now?  Most people probably start spending more money on their credit cards.  This would in fact mean that they are now worse off.  Added a home equity loan to eliminate their credit cards is not a solution if they continue to spend on the cards.  The reason why many people stay in debt is because of their habits regarding spending.

Could Foreclose your Home- Let’s face it, if you don’t pay off a home equity loan, you can say goodbye to your home.  People who have spending problems will often find that consolidating their debt doesn’t help their problems, it only creates more problems.

Could Max out Credit- Everyone has a certain limit on their access to credit.  Lenders won’t give you more credit if you have a lot of access to credit already.  Taking a big home equity loan could make it harder for you to get other kinds of loans in the future.

After going through these pros and cons of debt consolidation, you should see if it is right for you.  Debt consolidation can be very useful if you use it right, otherwise you could end up losing your home.  Make sure you do your research online and find different companies that specialize in debt consolidation.  The more homework you do, the better off you will be in the end.