Personal loans for debt consolidation have been one way that consumers have been able to move various debt obligations into one particular area and begin the process of repaying a single loan, which can bring more affordability in terms of the monthly mortgage payments that these consumers must meet and this obviously has been a big draw for many consumers who may be struggling under numerous debt obligations from different loans to credit card debt. However, when it comes to debt consolidation, there can be benefits for consumers but many advisors often worry that there could also be underlying problems that consumers need to address before continuing to seek a consolidation loan for personal consumer debts.
The benefits of a personal loan that offers the option for a consumer to consolidate multiple debts usually manifests itself in the lower monthly payment that a consumer will meet and many also see that if they are only combating one interest rate they will likely be in a better financial position when all is said and done. Understandably, consumers who may have found themselves in a position of financial hardship due to factors outside of their control may feel that a consolidation loan is their best bet, rather than missing payments due to the inability to meet high overall monthly costs. Yet, there are some advisors who feel that consolidation loans can be completely avoided, as they could also bring higher overall costs, despite the fact that they may be able to lower a consumer’s total monthly payment obligation on these various outstanding debts.
An article from Bankrate.com echoes this sentiment as it is said that, “A major appeal of consolidation loans is convenience. Instead of paying 20 different creditors who charge different rates at different times of the month, you take out one big loan and pay off all those accounts. Then, you make a single payment on that loan once a month.” Yet, the article goes on to state that this does not automatically translate into a consumer saving money in the long run, and this is due to the fact that a higher principle amount on a consolidation loan could lead to the costs associated with the loan’s interest rate to be much higher. When this is factored into a longer repayment time frame, some consumers may have found consolidating was not the best option.
While again, if a consumer runs the risk of missing payments on these various debts when kept separate, consolidation, even if it comes at a higher cost, could be the more optimal choice since missed payments lead to a lower credit score and potential trouble in the life of the consumer in other areas. Also, if a consumer may be in a poor credit position, meaning they have a less than perfect credit score and history, this could lead to higher interest costs as well, which would obviously push the overall costs they must pay on a consolidation loan even higher.
Simply put, consumers who are having financial problems as a result of their own practices may want to take a step back before consolidating to see if there are underlying problems that may have led to their need for a consolidation plan. Consumers who consolidate their debt rather than properly manage it are usually finding themselves in a similar position down the road and entering into numerous situations where assistance through options like consolidation may constantly be necessary. However, consumers who may be able to pay off their debts separately could find that they are in a better position financially, in terms of costs, and are likely to develop better spending and repayment habits so as excessive debt may be avoided in the future. While not every consumer addresses their debt issues soon enough to benefit from attacking debts one source at a time, if paying off various obligations seems to be a constant issue in the life of a consumer, using a consolidation loan to erase debts may be treating symptoms and not the cause of deeper personal financial issues.
Some consumers may be able to break themselves on these bad financial habits and avoid further problems and excessive costs related to constantly fighting their way out of debt, but if additional resources are needed to help cure any underlying problems that a consumer may have, there are options like nonprofit credit counseling organizations that can be beneficial in not only helping consumers get out of debt but could also help them set future financial goals and establish healthier financial practices so that letting debt get out of control will no longer be an issue.