If you are eligible to receive a low-interest rate and make on-time, consistent payments every month, debt consolidation may be a great option for you. Having various streams of debt from multiple sources can be overwhelming. Debt consolidation allows you to combine your debt into one monthly payment, with a fixed interest rate and payment. However, debt consolidation loans, whether obtained through Symple Lending or other companies, come with pros and cons. Continue reading to find out what those are.
Pros of Debt Consolidation
Eliminate Debt Quickly
Consolidating your debt at a fixed interest rate allows you to save a ton of money and get out of debt much faster. For example, if you are currently paying $500 a month on multiple credit cards and other loans, you could save as much as $50 each month by consolidating your debt.
Only One Payment
Instead of dealing with the hassle of keeping up with various monthly payments and interest rates, you will only be responsible for one fixed payment after consolidating your debt. The interest rate or monthly payment will change over the life of the loan.
Whenever you apply for a new loan or credit card, a new hard inquiry will be placed on your credit. This hard inquiry results in a reduction of your credit score by several points. But, if you make your payments on time, each month, you will see a positive impact on your credit score.
Additionally, paying off your credit card balances reduces your credit utilization ratio. This is one of the biggest things that impact your credit score.
Cons of Debt Consolidation
May Not be Eligible for a Lower Rate
It can be extremely difficult to qualify for a balance transfer credit card since most of them require you to have at least good credit. It is much easier to access a debt consolidation loan as they are more tailored for those who have bad credit. But, those who have higher scores typically receive lower interest rates.
Debt consolidation probably isn’t a great idea for you unless you can receive a lower interest rate than your current loans. If this sounds like your case, another solution may be more beneficial for you.
Falling Behind on Payments
If you begin to miss payments on your debt consolidation loan, this could put you in a worse situation than you were in before.
For instance, if you don’t pay off your balance transfer credit card prior to the end of the promotional period, you will be left with paying the balance at a higher APR. Falling behind on a debt consolidation loan means that you could end up with significant late fees and missed payments, all of which may be reported to the credit bureaus.
Failing to Convey the Underlying Problem
Even though debt consolidation can be helpful, it won’t do you any good if you still haven’t found a solution to the underlying problem. If you struggle with overspending, this could be extremely risky for you. You can easily be tempted to use your credit cards again once they are paid off, resulting in more debt.
If you are still wondering whether debt consolidation is appropriate for you, talk to a Symple Lending expert today.