The Positive and Negative Side of Debt Consolidation

by Michael Geoffrey

Many people find that over time they have accumulated more debt than they can repay. When that happens, there is a reinforcing downward spiral. The inability to repay the debt leads to additional interest charges and penalties, making it still harder to repay the amount owed.

Debt consolidation is one means of stopping the snowball from rolling. Many people have considered this their best way out of debt and back to track financially. However, while there are a lot of positive aspects of debt consolidations, there are negatives as well. These should be considered before deciding if debt consolidation is right for your.

What does it mean to consolidate your debt? It is very simple. You turn your multiple debt into one debt and make one monthly payment to one lending institution.

However for this to be beneficial some factors come into play. If your single payment adds up to the same amount as your multiple payments you haven’t benefitted yourself at all. Since most of us utilize the internet to pay our bills, you won’t even save on the cost of checks of postage.

For debt consolidation to be beneficial one of the following must be a true statement: (1) consolidation will lower your monthly payment, (2) the interest you will repay will decrease or (3) the total amount of debt that you will repay will be reduced. Whether or not one or more of these is true is contingent on the type of consolidation plan you are looking into.

In the ideal case, which rarely happens, all three take place. The most common scenario is that the monthly payment is lowered. This has several advantages to the debt ridden. When the payment is lowered, you have a much higher chance of being able to pay it consistently.

By meeting your payment obligations you avoid additional interest and late fees. It also gives you the peace of mind in knowing that you are making your monthly payment while still being able to care for your other needs.

The down side to this is that a lower payment can feed the faulty mentality that led to being overcome with debt from the beginning. You have extra money in your pocket and begin to think there’s no need to be concerned. You can revert back to a laid back attitude toward spending. Being overly concerned is not good. But a lack of concern can work against your ultimate goal of freeing yourself of debt.

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