Debt Consolidation Pros and Cons

Debt consolidation programs are all the rage with more and more people having financial problems. But before diving in headfirst to what might seem like a dream come true, you should know the pros and cons.

1. Replace several bills with one

2. Low monthly payments that are made possible by lowered interest rates.

3. Waived fees and charges.

4. Collection calls are handled by your debt consolidator.

5. Debt is paid off much sooner.

6. Credit scores increase faster.

7. You can avoid bankruptcy.

This sounds fabulous doesn't it? Step back for a minute and let's consider the negative aspects, which can be VERY negative.

1. If you are already behind on your payments, the interest rate you will be given could be as high as 22%. Your monthly payment may be lower, but you will pay more in the long run.

2. Creditors discount about 10-15% of each payment to your debt consolidator who in turn keeps that money themselves instead of lowering your loan amount.

3. You can often renegotiate interest rates on your own. Why pay someone to do it for you?

4. Debt consolidators sometimes miss payments or fail to make them on time. If you are late making a payment, shouldn’t it be your own fault?

There are things that you can do on your own without using a paid service. See if you can refinance your car loan and negotiate better credit card rates. Getting a cash out refinance on your home is a popular way to get money to pay off debts. You can also take a personal or home equity loan for the amount of your debts. Try to reduce the amount you owe by settling credit card debts that are months overdue.

A viable option for a lot of people is going to a credit counseling service to evaluate their options and learn more about personal finance in general. Learning to budget your life better is the real key to straightening out your money problems.