Debt consolidation loans are often used by consumers who feel that wrapping all of their various unsecured debts into one location will be more affordable when it comes to meeting monthly payment obligations. While, understandably, some individuals have difficulty meeting various debt payments, some financial advisers often warn against turning to debt consolidation loans, on things like credit cards, personal loans, or student loans.
When a consumer uses a debt consolidation loan they feel that, since only one of the payment must be met and one interest rate must be combated, they will be able to either save money over the long run or simply avoid missing payments and getting behind. While it is true that only one payment can be easier than multiple payments on various debts, a higher principle amount which is associated with consolidation loans can become problematic as it will take longer to repay and interest can build over time.
Some individuals have been smart about using consolidation loans to their advantage and have simply paid more than the minimum monthly requirement on this type of loan, which has allowed them to erase their debt and a much timelier manner. Obviously, consumers who can afford higher contributions may benefit more so than from meeting minimum monthly payments, but there are arguments by certain financial advisers who feel using a similar method on various debts will also be helpful.
As an example, rather than consolidating credit card debts, some advisers suggest making a repayment plan which allows a consumer to put as much money towards one card as they can, either on the card with the smallest balance or highest interest rate. Minimum payments will be met on the other cards and focusing a high level of cash on one card at a time can, in certain situations, erase credit card debt much faster than a consolidation loan.
However, it will be heavily dependent upon one’s personal financial situation as to which method may be best for their debt. Consumers who do choose consolidation loans are, again, often advised to keep an eye on interest rates and the repayment time frame, as these factors can cause overall costs to rise. Yet, individuals who may be good at saving or budgeting could form their own repayment plan which allows them to combat various types of debt separately but erase what they owe faster than had they simply chosen a consolidation loan for their debt.