Debt consolidation is simply the process of combining two or more debts into a larger single one. This works best for consumers dealing with high-interest debts. The New York Federal Reserve claims that the average loans in the US including exceeded $14.9 trillion.
Most of these Americans do not know how to manage these debts and have to look towards other options to manage their finances. Some of the most common methods they use include taking assistance from creditors to manage their loans or using a home equity line or home equity for debt consolidation. However, going for debt consolidation has its pros and cons. Let us take a look at them.
Pros of Debt Consolidation
Following are some of the pros of debt consolidation.
Faster Debt Payment
Most credit cards do not have a set date for repaying debt which can cause debtors to get stuck in a loop. Debt consolidation has a starting and ending point, allowing the debtors to know how long it will take to repay the debt. Additionally, it also provides them with safe monthly or interval payments according to the agreement.
Debt consolidation allows debtors to convert multiple debts into a single one which makes the finances simpler. They do not have to worry about paying multiple interests, loan installments, or meeting deadlines. Rather they can easily make payments by keeping a single consolidated debt.
Lower Interest Rates
The average interest rate is 16%, whereas the personal loan in Utah ranges around 11% on average. Interest rates vary according to different factors, tone of which could be bad credit personal loans in Utah. That said, debtors with good credit scores to get lower interests and easier payments.
Cons of Debt Consolidation
Following are some of the cons of debt consolidation.
Up Front Costs
There is always a chance that a consolidated debt may come with a loan fee. These loan amounts are a flat payment amount and can include the following:
- Annual fees.
- Balance transfer fees.
- Closing costs.
- Loan origination fees.
Therefore, anyone going for debt consolidation should keep an eye on the terms of the consolidation and check the fee for the service as well.
Higher Payment Rates
Debt consolidation may also require making larger payments than you were first paying for the separate debts. There are various reasons for this, for example, bad credit personal loans in Utah are the biggest reason why debtors have to pay extra. Therefore, it is essential to double-check all the factors of your loan before making a decision.
You cannot Miss Payments
Missing payments on a consolidated debt can make things worse. The interest amount and the payment structure are fixed in the consolidated debts and debtors need to pay on time. Missing out on payments makes debtors pay higher amounts, increasing financial instability.
Debt Consolidation is a good way to merge your debts efficiently. However, you should keep in mind that these debts require a lot of vigilance in terms of setting the terms and the payment structure. We suggest you check out 1st Choice Money Center for more info and assistance with your debt consolidation. We will help you out.