Pros & Cons Of Debt Consolidation Loans | MoneyInMinutes

1. DEBT CONSOLIDATION LOANS – GETTING FAMILIAR WITH ITS ADVANTAGES AND DISADVANTAGES Given the financial constraints that most people have to deal with in modern times, they might be forced to take multiple loans from different or even the same lenders. Managing the efficient repayment of each of these loan amounts can prove to be quite difficult as it requires the borrowers to keep track of different amounts to be paid on different dates. Moreover, they need to manage their finances in a manner that ensures timely repayment of each EMI without causing monetary distress to them in other aspects of life. That is why an increasing number of people, struggling to manage multiple loans, often opt for a debt consolidation loan. A Brief Overview Of Debt Consolidation Loans Debt consolidation as the name suggests is the process of merging multiple loans into a single debt. This helps the borrowers to manage their funds more efficiently, as they are required to pay a single EMI each month as opposed to several different ones with varying interest rates. The process requires the borrowers to take a loan equivalent to the total balance amount of their various loans along with their consolidated interest. This amount is then used for paying off each individual debt, while the borrowers pay back the consolidated debt with a fairly manageable EMI amount and a significantly lower interest rate. Pros And Cons Of Debt Consolidation As is the case with most other types of loans, including instant loans online, debt consolidation also comes with its own set of advantages and disadvantages. Being aware of these pros and cons is essential for borrowers to make an informed decision of using this option for better managing their loans and their finances. The most important of these pros and cons are discussed in brief as follows. Pros Efficient Management Of Finances Debt consolidation is one of the most effective ways to help borrowers manage their finances efficiently. This is because they do not need to keep track of multiple EMI amounts or due dates, which can cause much stress and confusion. Rather the borrowers have to manage the payment of only a single EMI each month, which is far simpler and also reduces their financial stress. Relatively Lower Interest Rates One of the biggest advantages of opting for loan consolidation is that it helps to reduce the overall interest payable by the borrowers. The consolidated interest being paid by the borrowers for their different loans is often quite high. However, when the loans are combined into a single debt, the

2. interest they need to pay is only for this combined amount and is much lesser in comparison. A lower interest rate means greater savings for the borrowers and helps to improve their financial stability and repayment capability. Improve Credit Score Since debt consolidation makes it possible for the borrowers to pay off their multiple debts before time, it impacts their credit score positively. This is because it helps to improve their credit utilization which can prove beneficial for improving their credit score. This method can prove especially beneficial for individuals who might have opted for multiple ​poor credit loans to enhance their overall creditworthiness. Cons May Cause An Increase In Debt One of the biggest disadvantages of opting for debt consolidation is that it might actually cause an increase in the overall debt of the borrowers. This is especially the case when the borrowers opt for this option without analyzing their current financial situation or doing proper planning and research before taking up this option. Upfront Costs May Be Quite High Many times the option of debt consolidation requires the borrowers to pay different types of fees up front. These generally include the loan origination fees, balance transfer fees, closing costs, and annual fees, etc. These costs can be quite high especially for individuals already struggling with the shortage of funds and managing the payment of multiple loans at the same time. Interest Rates May Not Always Get Reduced One of the key aspects that attract people to choose the option of debt consolidation is the assurance of reduced interest rates. However, this might not always be the case as people might actually end up paying a higher interest as compared to what they might be already paying. The increase in interest rate may happen due to various reasons, including the consolidated loan amount and the financial condition of the borrowers. Original Source: https://blog.moneyinminutes.in/debt-consolidation-loans-getting-familiar-with-its-advantages-and-disa dvantages/