Debt Consolidation: The Benefits and Pitfalls
Debt consolidation is a multi-faceted decision. You need to get your facts right before jumping to any conclusions.
However, if you are juggling between multiple debts and due payments, debt consolidation can help you get rid of them once and for all. This will leave you with one major payment to make that is less likely to harm your credit score.
Care to hear the other side of the story? Learn about the pros and cons of debt consolidation.
- Comparatively lower monthly payments
Having to pay your interest amounts in several places accumulates to a huge chunk of cash outflow every month. However, if you have only one payment to cater to, you will have to pay considerably less in the long run. This is because your interest rate goes down which ultimately impacts your monthly payments.
- Cuts down on your decision-making alternatives
Decisions related to your finances are pretty crucial and involves considerable brainstorming and conscious thought processing.
When you consolidate your debt, you are wavering off multiple liabilities and amalgamating them into one, so there is that one sole payment that you have to take care of. This keeps you on top of your payment schedule and much more organized than before.
- Lower interest rates—for the win!
Do you realize the amount that you are spending on financial charges when your payments are spread over several debts or credit cards? Basically, when you put together all your loan payments in one place, you are automatically offered a lower interest rate and hence a net cash outflow that is drastically lower.
- Debt-is a viscous cycle
It is human nature that when you are limited by certain factors, you tend to spend within certain limits. However, as soon as you have free cash to spend, you are likely to end up making purchases again and end up in more debt. The “leftover” money is the culprit here.
- Looking at the bigger picture
Debt consolidation can be tricky. Apparently, it may claim to lower your interest rate but consolidating the amounts that you owe means that you have one big amount to pay now.
The greater the amount, the longer it will take for you to pay it off. This spirals down to the fact that if you sum up all your interest payments in that tenure, it is highly likely that you might just be spending more rather than saving up. The only way to avoid this situation is to get rid of your debt as soon as possible.
- The problem stays there—it only tones down the symptom
Even though debt consolidation claims to relieve you of the so-called debt payments over time, your habits is what needs to change. The debt you owe in the first place is not going to be reduced by even a penny. It’s just like presenting your debt payments in a less intimidating manner so that you are able to deal with it effectively.
Situated in Toronto, Whitby and Mississauga, we help you deal with debt problems and devise strategies in a more financially responsible way. Contact EmpireOne at (416) 900 2324 for further assistance.