Debt consolidation loans help a number of individuals to settle various debts, allowing them to streamline their finances with just the one regular payment as opposed to several.
There are a number of benefits to this option, which is why it’s a popular choice for many today. There are however various pros and cons to consider prior to taking out a loan to consolidate debt.
How does a debt consolidation loan work?
With such a loan, the borrower is able to close down a number of their credit card repayments and loan arrangements, by using the consolidation to clear the debts.
Early pay off charges
The biggest advantage of such a loan type is the fact that all of your debts are in one place, which in turn means you only have one interest rate to keep an eye on and just the one payment to make every month. One disadvantage however is the early pay off charges. If you come into money and wish to pay your loan off in one chunk, you may have to forfeit a few admin fees.
From annual fees to origination fees and administrative costs, there are a number of hidden fees to be wary of when investing in a consolation loan. Prior to opting for such a loan, be sure to read the small print first. Late fees and balance transfer fees also apply and can mount up quite quickly if you’re not careful.
Less time consuming
The major pro of debt consolidation is the fact that it’s less time consuming. Instead of trying to keep on top of several debt repayments leaving your account every month, you just need to look out for the one. You can even set this up to come out of your account at the same time every month, just after your wage as goes in.
Interest rates may be higher with such loans, however; loans for debt consolidation are there to assist in situations when reviewing finances, taking all your outstanding debts and bringing them together into a single bigger loan with a more manageable single repayment.