Personal debt consolidation loans are available for bad credit borrowers and traditional borrowers alike, but there have been questions as to whether these types of debt relief options should be used by specific consumers as there are benefits to consolidating debt, but also some problems that may go along with debt consolidation. However, many financial advisers often point out that if considerations and research is done on the part of individual consumers, these benefits and problems will become apparent as to how they will particularly affect a certain consumer’s life and point to whether or not a personal debt consolidation loan is beneficial in their case.
Essentially, the main benefits of a personal debt consolidation loan, particularly for bad credit borrowers usually comes in the form of finding more affordable monthly payments. Many bad credit borrowers who are looking for a personal debt consolidation opportunity want to get rid of a high-cost debts which may, in total, be unmanageable due to either financial hardships or mismanagement of money. Consumers who are in a bad credit situation may be able to access either a secured loan or find a balance transfer options on certain credit cards, but one of the problems of bad credit consolidation can be the cost, as fees or higher interest rates may be associated with bad credit debt consolidation loans.
For traditional borrowers, a wider range of opportunities may be available for debt consolidation as there are also balance transfer credit cards which have become more advertised as of late, but opportunities for a home loan refinancing with a cash-out option, a home equity loan, or simply a personal loan used for debt consolidation. Consumers who may be in a better financial position in these cases could see lower interest rates and, in some instances may find more affordability not only in their monthly payments overall, but this is where many advisors often feel debt consolidation loans are detrimental to a consumer.
While there are, again, options for both bad credit borrowers and traditional borrowers in a good credit position, the main reason that many consumers seek out a debt consolidation loan is because it will lower their monthly payment obligation, but consumers are still paying on the same amount of principal debt that they previously had. Simply put, debt consolidation loans can offer lower monthly payments but repayment timeframes may be extended to offer more affordable payments each month and even if an affordable interest rate is attached to this higher principle, the repayment terms could cause overall costs to increase.
These issues are addressed by a variety of advisors and one of the main themes that is seen is that some consumers who use these consolidation options to pay off debt find themselves in the same situation years down the road. As an example, Bankrate.com reported that, “…70 percent of Americans who take out a home equity loan or other type of loan to pay off credit cards end up with the same (if not higher) debt load within two years.”
While this data may differ in certain areas or for particular consumers, there seems to be a problem when individuals use debt consolidation and simply do not learn from the hardships they have faced which necessitated they consolidate their obligations. While, again, options for debt consolidation come in a variety of forms and can be available for numerous consumers, looking at the overall costs that one must pay, interest associated with a consolidation or balance transfer option, the repayment timeframe associated with a particular consumer’s debt, and simple financial habits on the part of the consumer will be necessary since some consumers may be able to erase their debt but simply find themselves in another bad financial position soon after.
Consumers who may have had a difficult financial time arise in their life which has led to the need for debt consolidation may not fall into the cycle of debt consolidation traps, but debt consolidation is not simply a quick fix that is beneficial for every consumer and, for this reason, researching what a consolidation loan will entail for a consumer’s particular situation and possibly consulting a credit counselor to help clean up any poor financial practices can be more beneficial in the long run than simply attempting to continually dig out of debt, as is the problem with some consumers.