Many people who have debt may consider debt consolidation loans or cash-out refinancing options to handle various sources of debt. While compiling debt into one loan can make it easier to manage there are many who say that individuals who are considering a consolidation loan for their debt may want to choose an alternate route.
Debt consolidation loans can group one’s debt into one loan, which will only require one payment per month and this can help avoid stretching someone’s finances to the limit and it decreases the likelihood that the person with debt will miss a payment. Yet, even with an affordable interest rate many say that a debt consolidation loan can cost much more over their repayment lifetime when interest and time are considered.
A cash-out refinancing consolidation loan is essentially using the equity in someone’s home to pay off their debts. Basically, it’s attaching debt to a home loan, which usually comes with a lower interest rate than many debt consolidation plans, and can be helpful for some. Yet, there are many advisers who warn against this action since a large amount of debt is usually acquired because of poor financial practices. If unsecured debt is attached to a home, which is secured, and the homeowner mismanages their finances and can no longer pay for refinancing their home, they don’t simply take a hit on their credit score but lose their house.
While there is caution needed in these cases, a debt consolidation loan or cash-out refinancing can be helpful for those who are responsible when it comes to paying off these consolidations. Yet, financial advisers often warn people with debt to consider the pros and cons of consolidating and make sure they budget so they can pay off a consolidation fast, get out of debt with as low of a cost as they can, and make sure their financial habits will not cause more trouble down the road if they choose refinancing as a way to deal with debt.