Can debt consolidation be bad for you?

Can debt consolidation be bad for you?

Have you taken out any unsecured loans like payday loans, credit card loans, etc.? Then most likely you are getting exhausted from managing your debts and paying off your bills on time!

Usually, these unsecured loans often come with incessantly high APRs (Annual Percentage Rates)! This APRs make paying off unsecured loans more cumbersome!

Well, it’s quite impossible to have a single payment date for all your debts! As a result, you might be slogging in to remember all your payment dates and make timely payments as well!

What if you get relief from all these headaches?

Yes, you can certainly opt for debt consolidation to get rid of all your debts. You might have heard about debt consolidation from your friends, relatives, or any financial advisor!

But are you aware of the ways of ‘debt consolidation’?

Let’s have a look!

  1. Debt consolidation program:

    In a debt consolidation program, a consolidation company negotiates with your creditors on your behalf to reduce the high APRs of your loans.

    You can consolidate all debt into one monthly payment till the time you completely pay off your debt(s). But remember, the consolidation company will charge you for their professional services!

  2. Balance transfer method:

    It’s one of the most effective credit card consolidation options! This method allows you to transfer all your high-interest credit card outstanding amount to a new credit card with a lower interest rate!

    In fact, you will find some balance transfer cards which offer 0% APR for a certain time period!

  3. Consolidation loan:

    It helps you to consolidate all your existing debts into a single one. Moreover, it helps you to pay off your multiple debts with a lower interest rate and fewer monthly payments!

But is debt consolidation a good idea for you?

Because debt consolidation can be bad for you in some scenarios! Yes, you heard it right! So before you proceed, first check out 10 important facts about debt consolidation!

Let’s start with the scenarios when debt consolidation can be a bad idea for you!

1 You have not been able to control your spending habits

Debt consolidation can simply false financial security that you have already paid off all your debts. But that’s not the truth! You have to go through the full payment process to get rid of your debt trap.

After you complete paying off your debts at reduced APRs, your creditors mark those debts as “paid in full”. But if you think that you have already paid your debts, it might intrigue you to look for new credits! And eventually, you remain trapped with your debts!

So, if you are unable to control your spending habits, learn how to stop wasting money to keep your finances on track!

2 You are considering debt consolidation as the silver bullet for your debt related problems

In debt consolidation, you have to negotiate with your creditors to reduce the high APRs of your debts. If they agree, you can save some dollars on your interest payments!

But let me tell you, you still have to remember the payment dates for your different debts still now! So, what can you do about that? Should you hire a professional to clear debts or do it yourself?

You can approach a debt consolidation company, which will negotiate with your creditors on your behalf! The biggest advantage would be making single monthly payments to the debt consolidation company, which in turn will distribute the money among your creditors. But you have to remember that in debt consolidation, only the APRs will get reduced keeping the principal amount the same!

So, what if you are going through a financial crunch and unable to make monthly payments even with a reduced APR?

In that case, debt consolidation won’t be apt for you! So, depending on your financial status you can opt for either debt settlement or bankruptcy to get rid of your debts!

3. You don’t have a steady income

Yes, if you don’t have a stable source of income, you should stay away from debt consolidation! It doesn’t matter how you are consolidating your debts, i.e., doing it yourself or through a debt consolidation company.

At the end of the day, you have to make monthly payments either to your creditors or to the debt consolidation company.

So, opting for debt consolidation if you are currently unemployed or not having a steady income can be a bad idea for you!

As of now, you have come across some of the scenarios where debt consolidation can’t be a good option! But you will find ample situations where debt consolidation can be your sole savior

1. You are committed to getting out of debt(s)

Finally, you have decided to get rid of your debt trap! But you need to be a strategist to pay off your debts with ease and get debt free!

For example, you can opt for debt consolidation, which is one of the fruitful debt relief options.

With debt consolidation, you pay off your loan amount in full but with a reduced APR! As a result, your creditors mark those debts as “paid in full” on your credit report! Eventually, your credit score improves with time! However, if you are approaching a debt consolidation company, always look for the genuine best debt consolidation companies near you!

2. You are unable to manage different payment dates of your debts

When you have taken out multiple loans, it’s quite obvious that the payment dates are different!

To err is a common thing for humans! Sometimes it might happen that you missed the payment deadline. And as a result, you have to shell out more from your pocket for paying late fees or penalties! But if you opt for a debt consolidation program, you have to make a single monthly payment to the consolidation company. The concerned company, in turn, will distribute the money among your creditors.

As a result, you don’t have to remember payment deadlines and thus bracing yourself from the huge late fees and penalties!

You get relief from incessantly high APRs

Usually, unsecured loans have very high APRs and eventually, it becomes very tough for you to pay off! But through debt consolidation, you can negotiate with your creditors to reduce the APR and pay off your debts with ease!

If you have approached a consolidation company, they will negotiate with your creditors on your behalf to reduce the high APRs. Moreover, you get the benefit of making single monthly payments to the consolidation company for all your debts rather than making different payments. However, always remember that these services of a consolidation company come with a professional charge which you need to pay!

Well, I hope that you aren’t confused anymore! Because it depends on you, your situation, whether or not debt consolidation will be apt for you

author Valentina Wilson profile pic

By bestdebtconsolidation_admin on February 19, 2021

Valentina Wilson is a writer and blogger who specializes in personal finance and positive change and associated with BestDebtConsolidation. She has a master’s degree in financial journalism and seven years of experience in personal banking and believes that small behavioral changes are the key to achieving financial freedom.

Follow her on Linkedin: valentinailson