Debt has become an increasing problem for many Americans over the past months as more people have been spending on credit cards or seeking loans in order to keep themselves afloat during tough economic times. When something like credit card debt gets out of control individuals often find themselves owing multiple debts, which obviously come with multiple interest rates, and can be burdensome when someone who is struggling financially has to repay what they owe. It’s for this reason that many people are turning to debt consolidation loans for alleviation from multiple debt payments.
However, there are mixed feelings on the subject as some financial advisers believe consolidating debt into a debt consolidation loan is a poor financial move, while others believe it is an excellent way someone can handle various forms of debt. One of the main figures that drives individuals towards debt consolidation loans is the fact that multiple debts that are owed, along with multiple interest rates, can be met when minimal monthly payments are made, yet interest rates and an extended repayment time period can cause the overall payment of debts to be quite expensive.
Arguments in favor of debt consolidation loans point to the fact that by having multiple debts rolled into one loan, which also would puts these debts under one interest rate, a debtor has a better chance at meeting monthly payments, which lowers the risk of defaulting. Many believe that by obtaining a debt consolidation loan they can keep their credit score in decent standing since they will be more likely to make their monthly payments on this one consolidated loan.
While getting rid of multiple debt payments with multiple interest rates can be beneficial, there are some advisers against debt consolidation loans who warn that this method of dealing with debt can be quite costly. Many individuals who consolidate their debt may get a lower interest rate and monthly payment than what was on many of their various sources of debt. Yet, lower payments or interest rates on debt consolidation loans are often available because the lifetime of repayment is extended, which can lower monthly payments but may cost more when the entire consolidation loan is repaid.
It’s for this reason that it’s important for those who are considering a consolidation loan to look at their financial situation and make sure that consolidating will be beneficial. Individuals who do obtain a consolidation loan oftentimes will pay more than the minimum required amount so that they can get out of debt in a timely manner, with less cost. However, consolidation loans are not beneficial for every debt situation, so personal consideration has to come into the picture and debtors have to run the numbers to see if they can afford to keep their debt separate or if they can afford the possibility of extra costs that may come with consolidating.