Personal Loan for Debt Consolidation – Is It a Good Idea?
What is Debt Consolidation?
Before we discuss about the benefits and setbacks of using Personal Loan for debt consolidation, you need to know what exactly debt consolidation means. Debt consolidation is a financial concept which deals with taking a single loan on a usually lower interest rate, to pay off several other debts.
Is Personal Loan for Debt Consolidation Good Idea?
Now you might be tempted to use Personal Loans for debt consolidation. And indeed it seems to be a good bet to consolidate all high interest debts into a single debt with favourable terms. So, before you decide, do look at the pros and cons of Personal Loans for debt consolidation.
Also Read : A Beginner’s Guide to Debt Consolidation
Benefits of using Personal Loans for Debt Consolidation
- It is convenient
Consolidation of debts helps you by saving you from the hassles of paying several debts on a regular basis. You just have to keep track of one bill. If you want to be organised than it might be a good idea to consolidate your debts.
- The interest rate is lower
If you use Personal Loans for debt consolidation than the Rate of Interest for the consolidated debt is lower than the average of the interest rates paid for all the debts prior consolidation.
- You get more time to repay your loan
If you are close to bankruptcy than Personal Loans for debt consolidation can help you delay the debt further. Basically they help you in buying the desired period of time.
- Lower monthly payment
If you are struggling to pay your monthly debts than you can opt for consolidation of debts. By using Personal Loans for debt consolidation you just have to pay interest on one loan and thereby your monthly payout gets lower.
Drawbacks of using Personal Loans for Debt Consolidation
- You can end up losing a lot
Using Personal Loans for debt consolidation is a risky bet. Especially if you use a home equity loan for consolidating your debts. When you are consolidating unsecured debts by a home equity loan, than your house serves as a collateral. If you fail to repay the loan than you can end up losing your home as the financial institution holds the right to auction it.
- The debt can increase
After opting for debt consolidation you must be disciplined. If you are unable to keep track of your money, than you can end up being in much more debt.
- The amount spent is more in long run
The lower interest rates might make you believe that using Personal Loans for debt consolidation is a great means to save your money. But now, you are mistaken. Debt consolidation lowers your monthly payments only at the cost of increasing the duration of the debt. Now you have to keep paying the debt for a much greater period.
How to take the Final Decision?
Using Personal Loans for debt consolidation might help you in getting out of debt.
- Personal debt consolidation calculator
Personal debt consolidation helps you to answer the question - is Personal Loan for debt consolidation a good idea? The Personal Debt Consolidation Calculator helps you in deciding whether debts be consolidated by providing you with a detailed reports on the basis of the inputs you have provided.
- Read the fine prints
Usually people miss out on reading the fine prints while taking a consolidated loan. This fine print talks about all the terms and conditions of the loan. This would help them in taking a wise decision.
- Look for other options
Do not opt for using Personal Loans for debt consolidation blindly. Do a thorough research and look for other financial options that can help you in managing your debts.
- Seek expert advice
If you are not able to decide whether Personal Loans for debt consolidation is good for you or not than do not shy from going to a financial expert who can help you with this.
Remember, the use of Personal Loan for Debt Consolidation is the right option for you only if you are able to smartly handle your money. If you are drowning in debt than do look at all the pros and cons of Personal Loans for debt consolidation as it might help you in lowering you burden.