What are the advantages of debt consolidation? This question is about Debt Consolidation Guide

What are the advantages of debt consolidation?

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This question is about Debt Consolidation Guide

Grace Enfield, Content Writer

@grace_enfield • 10/28/21 This answer was first published on 10/08/21 and it was last updated on 10/28/21.For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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The advantages of debt consolidation include the possibility of a lower APR, the simplicity of one monthly payment, a lower chance of going into more debt and damaging your credit, and more time for repayment. The pros of debt consolidation outweigh the cons when done correctly.

Advantages of Debt Consolidation

Possibility of a lower APR

You may be able to get a lower APR than the ones on your original debts when you consolidate. This could help you save money and pay off the debt faster.

One monthly payment

Instead of remembering to pay multiple creditors each month, you only have one monthly payment on debts you consolidate.

Lower chance of more debt and credit score damage

Accruing interest more slowly and only submitting one payment per month reduces your chances of missing payments or defaulting, which helps you avoid credit score damage.

More time for repayment

You might get a longer payoff period, depending on the types of debt you consolidate and how you consolidate them. Some personal loans spread the payments out over as many as 144 months (12 years), for example.

Increasing your repayment period might undermine the savings from a lower APR since you will have to keep making payments for a longer period of time and you will accrue interest each month. However, this can be worth it for people who cannot afford larger monthly payments.

If you think debt consolidation is right for you, check out WalletHub's debt consolidation loan comparison page to see the latest offers.

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What are the pros and cons of debt consolidation?

The biggest pros of debt consolidation include the potential to save a lot of money and the simplicity of having fewer monthly payments to deal with. Notable cons include short-term credit score damage, the possibility of fees, and the risk of actually adding to your debt load in the long run. Plus, it’s difficult to get a good deal on debt consolidation without a credit score of 660-700 or higher.

So, the practice of...

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Why is debt consolidation a bad idea?

Debt consolidation is a bad idea if it does not save you any money. This happens when the interest rate on your new loan or line of credit ends up being higher than that of your existing debts, which mostly defeats the purpose of consolidation. In that case, the only benefit would be having all your debts in one place. Debt consolidation may be a bad idea in other situations too, like if you work...

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What are the risks of debt consolidation?

The biggest risks associated with debt consolidation include credit score damage, fees, the potential to not receive low enough rates, and the possibility of losing any collateral you put up. Another danger of debt consolidation is winding up with more debt than you start with, if you’re not careful.

While debt consolidation can often save borrowers money and help them pay off their debts faster, it’s important to consider all of the potential dangers...

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