Debt consolidation is an interesting banking proposal that combines all financial obligations of a given client into one and most often with a lower installment. It allows you to organize your finances and sometimes really saves your home budget. Car, mortgage and cash loans may be subject to consolidation, as well as credit cards or debts on current accounts. Theoretically, it looks very inviting. However, it is worth looking at both the advantages and disadvantages of this solution.
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The benefits of this debt consolidation seem quite obvious and sensible. First of all, it will be convenient to pay off one installment, not several. The second important aspect is the lack of the need to remember the repayment dates of certain installments. The more different terms, the easier it is to overlook something. In addition, when you receive a consolidation loan, you often get an additional amount for any purpose.
However, it must be remembered that consolidation only makes sense under certain circumstances. Before you make the final decision, you have to do a few things beforehand. First and foremost, all expenses should be reduced as much as possible except for those necessary. The second step would be to try to increase your income. You can even sell everything that you can find in the basement or cabinets in order to get rid of debts. However, the most important thing is to draw up a home budget and complete financial control. If this does not work, then it is worth considering a consolidation loan.
What at first glance looks like an advantage, does not necessarily have to be. If the biggest problem is the ability to memorize repayment terms for several loans, then it might be a wise idea to set a standing order or direct debit. You do not have to remember the installments that will be settled on time.
The lower installment, but …
Nothing is for free. Yes, monthly installments may be lower, but this is not usually associated with any significant interest rate reduction, but with the extension of the loan period. In particular, cash consolidation loans have an interest rate similar to other cash loans. In any case, lower monthly liabilities translate into a longer repayment period, and this, of course, involves a higher overall amount to be paid. If someone cares about faster repayment, then consolidation is rather not conducive. In addition, it is also worth remembering about other costs, such as commission or the necessity to buy a policy.
A trap for additional funds for any purpose
Theoretically, it seems that every sum of extra money should not only bring joy, but be a value in itself, but in this situation is not necessarily a good allowance. After all, we are dealing with another amount, which will be repayable anyway. Consequently, it’s another cost. Similarly, be aware of the consolidation offer with credit holidays.
To sum up, debt consolidation will be disadvantageous if it does not really change its habits, which have contributed to the problems with repayment of loan installments, which may be too high expenses, disorder in home finances and lack of any budget planning, lack of determination in collecting savings and in the search for additional income and even some kind of laziness. These are issues that need attention because consolidation is not a magic trick, it’s just a chance. In another case, after a few or several months, the problem may be repeated.