The Pros and Cons of Debt Consolidation

Should you consolidate your debts?

Struggling to keep up with multiple debts like credit cards, car or personal loans? Then it might be worth considering debt consolidation. Consider these pros and cons to help decide.

Benefits of Debt Consolidation:

Convenience

Combining multiple debts into one loan leaves you with just one loan and one much easier monthly payment to manage.  

Lower Interest

Rolling all high-interest debts like credit card debt and store cards into one new loan with a lower interest rate can reduce interest.

Lower Monthly Repayments

Lower interest can result in lower monthly repayments and depending on the terms of your new loan, making monthly repayments into one loan will probably work out cheaper than the combined monthly repayments of multiple debts.

Savings

With lower interest, lower monthly repayments and fewer fees, the savings add up big time! – this is on the basis that the original loan terms have not been increased.

Less Fees

Because debt consolidation gives you one loan, you’ll only ever have one fee, which means more money in your pocket.

Easy Budgeting

Budgeting is simple when you only need to account for a single loan repayment.

Clear Financial Planning

Debt consolidation enables you to set up a repayment schedule and work towards being debt free by a certain date.

Improved Credit Score

When you combine debts into one loan and consistently make the single monthly repayment you will start to rebuild and improve your credit score. How does this work – one of the major items for a credit score is normally based on the number of enquiries for credit.

Pay Off Debts Sooner

A manageable loan and single monthly repayment can give you the confidence to get on top of your debt and work towards paying it off sooner.

Improve Personal Cash Flow

New loans with flexible repayment periods can give you the option to spread your loan over a longer period. This could be beneficial as smaller monthly repayments will help free up cash and let you stay on top of debt.

No Embarrassing Debt Collection Calls

Debt consolidation lets you pay off the debts and say goodbye to debt collectors.

Download our Guide to Debt Consolidation

Common Debt Consolidation Traps:

Credit Cards

If you consolidate your existing debt and continue to build more debt on your credit cards, the debt will continue to increase, most likely at a greater rate than you can pay it off.

More Debt

Taking on more debt, like another personal loan, once you’ve consolidated your existing debt counteracts the benefits that debt consolidation provides.

Long Loan Term

A longer loan period can provide for smaller monthly repayments, but over the long term you may end up paying more.

Reduced Credit Score

If you miss repayments on your new loan, continue to overdraw on your credit cards or apply for loans too often that can also reduce your credit score.

Mortgage House

At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.

But don’t worry, we can help with that.

If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. 

Click here to speak to us!