Many people are unfortunately struggling with debt. This is a difficult situation for so many people, because on average every American household has around $10,000 in credit card debt alone.
Unfortunately, many of us have credit card debt spread across multiple cards. And with the varying high interest rates, it’s often incredibly time-consuming and expensive to stay on top of our payments. For some of us that are really struggling, it’s often impossible to keep up with it all.
To help you overcome your debt crisis, you might want to consider debt consolidation loans. For many people, these loans are an excellent option and provide many big benefits. For others, there are going to be risks involved.
With that in mind, we will take a look at the potential risks and major benefits of debt consolidation loans. After you’ve learn this information, you can determine if a debt consolidation loan is the best option for your personal situation.
The Potential Risks of Debt Consolidation Loans
- Extending the life of your original loans – whether you realize it or not, one of the reasons why people get lower monthly payments with these loans is because they extend the length of the loan much longer.
If you’re having problems keeping up with your payments, this is certainly a viable option. But you must be warned that the inherent risk is that you’ll potentially pay a much greater amount of interest over the long haul if you only make the minimum payment for the lifetime of the loan.
- Falling into an even bigger debt trap – unfortunately, many people often fall into an even bigger debt trap after they take out a debt consolidation loan.
Why does this happen?
For starters, in many instances you can use the debt consolidation loan to pay off the balances of all of your credit cards. But that does not necessarily mean that your credit cards will immediately get canceled.
So, if you keep those credit cards open and available to use, you could end up building up your credit card debt again if you aren’t careful. Not only will you have to pay off your debt consolidation loan, but you’ll also have to keep paying off your credit card balances again.
The Inherent Rewards of Debt Consolidation Loans
If you’re serious about getting a debt, debt consolidation loans provide a number of fantastic benefits. They include:
- Consolidating all of your credit cards and other debts into one monthly payment – by consolidating all of your loans and credit cards into one payment, it will be a lot easier for you to keep on top of this bill. Instead of having to pay five, 10, or more credit cards and loans every month, you only have to pay one simple bill and nothing more.
- Lower interest rates – the great thing about debt consolidation loans is that you’re eliminating all of your high interest rate loans and consolidating them into one loan with a lower interest rate. This is going to save you tons of money over the long run because you’ll no longer have to pay such high levels of interest.
- There’s a light at the end of the tunnel – now that you aren’t buried under high interest rates any longer, you can begin using the excess money that you used to pay toward paying down the principal on the consolidated loan.
According to Debtconsolidation.loans, a website sharing info regarding when a loan is necessary, “Most consolidation loans are offered at a fixed interest rate, which gives borrowers the stability and predictability they might lack in their current financial arrangements.”
Now that you understand the potential risks and inherent rewards of debt consolidation loans, decide if this is the right choice to make.