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Loan consolidation: pros and cons?

is it worth it?

Determining if consolidation loans are the right decision for you requires serious thought. As with any decision of magnitude, carefully weighing the pros and cons is important.

Let鈥檚 explore the pros and cons of this type of debt solution.

Pros:

One payment versus many payments: The average citizen of the USA pays 11 different creditors every month. Making one single payment is much easier than figuring out who should get paid how much and when. This makes managing your finances much easier.

Reduced interest rates: Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans. They have nothing except your word and your history. Since this is the case, unsecured loans typically have higher interest rates.

Lower monthly payments: Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.

Only one creditor: With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.

Tax Breaks: Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.

Sounds great, doesn鈥檛 it? Before you run out and get a debt consolidation loan, let鈥檚 look at the other side of the picture 鈥?the cons.

Cons:

Easy to get into further debt: With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place.

Longer time to pay off: Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt.

Spend more over the long haul: Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.

You can lose everything: Consolidation loans are secured loans. If you didn鈥檛 pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.

As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.

Thanks alot everyone

It pays all your bills off and you are making smaller payments each month. It could take longer to pay off the consolidation with interest than it would to pay the bills individualy. If you have a lot of debt, it could be a good way to go.
I don't see many cons with it although I don't know much about it.
Isn't consolidation when u take all ur bills, put them in one big bill that makes the interset lower. So in the long run, you'll be paying less. Instead of dealing with 10 bills a month all those bills come in one bill which u pay and te bank deciphers where the money goes.
Is that right???
One payment ! But you have to pay that simple bill... and make no new debts before the full payback.
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