Personal debt consolidation loans is one method of lowering monthly payments that typically stays in the focus of consumers who may have financial distress in their life or feel that consolidation may be a more affordable or cost-efficient way of avoiding the high monthly payments related to multiple debt obligations. However, debt consolidations, be they from a personal unsecured loan or a secured loan opportunity that allows for debt consolidation, will offer various advantages or disadvantages depending on the borrower and how they implement the repayment obligation of a consolidation loan.
Yet, there are some aspects of debt consolidation that may not be available to certain consumers as some financial institutions may simply not offer a debt consolidation opportunity or might even limit the amount of personal loans they make, and some will offer alternatives like credit cards that will allow consumers to transfer balances from other debt sources. However, there are financial advisors who take a strict stance against debt consolidation as well due to some of the problems that may arise for certain consumers who have entered into a personal debt consolidation loan agreement with a particular bank.
As an example, financial advisor Dave Ramsey states that, “Debt consolidation is nothing more than an ‘con’ because you think you’ve done something about the debt problem [but] the debt is still there.” This is one aspect that many financial counselors often cautioned consumers about when they are considering a personal debt consolidation loan as simply moving debt into one location, like a loan or a credit card, often translates to some consumers that they have erased those multiple debts and can begin spending on credit cards or acquiring other forms of debt while paying on their consolidation loan as well.
It is true that debt consolidation loans can offer a more affordable monthly payments for troubled consumers, which can be more cost-efficient and easier to meet than separate monthly payments on various debt obligations, but consumers who have most often benefited from a personal debt consolidation loan are usually those who focus as much as they can on erasing this consolidated form of debt so as to avoid higher overall costs. Even if a more affordable interest rate and lower monthly payment comes with a particular personal debt consolidation loan, consumers will have to be paying interest on a higher overall principal amount and the repayment time frame worked out on a personal debt consolidation loan could cause the overall costs that a consumer meets to increase.
This is one of the reasons that many counselors often want consumers to look at personal budgeting habits that could be implemented which would lead to options for erasing debts separately and then compare this cost to a debt consolidation loan. While there are some cases where consumers simply cannot continue meeting debt payments while they are separate and fear that without a consolidation loan and lower monthly payments they may default on certain sources of debt, if this is the case consumers must also avoid acquiring more debt, still implement a household budget, and attack their consolidation loan with as much funds as they can spare. Consumers who have paid beyond the minimum monthly payment on their personal debt consolidation loan could lower the overall costs they must meet, but again, when considering a personal consolidation loan, individuals may benefit from nonprofit credit counseling or simply carefully reviewing their financial position and ability to repay various debts as consolidating may not be in their best interest financially.