Debt consolidation loans: pros and cons

Being in debt to a number of different creditors can, for some people, be a stressful experience.

Replacing multiple debts with a single new debt, a debt consolidation loan will allow you to make one monthly payment to one creditor, rather than multiple payments to various creditors. You may also be able to lower your monthly payments, by slowing down the rate at which you repay your debt.

Before committing to a debt consolidation loan (or any debt solution, in fact), it is important to understand the advantages and disadvantages, so you can decide whether debt consolidation might be right for you.

Advantages -

1. By spreading your repayments over a longer period of time, you could reduce the monthly cost of servicing your debt.

2. If you are consolidating high-interest debts (such as credit card debts), you might be able to reduce the interest rate you're paying, which means your debt should grow at a slower rate.

3. It may make it easier to avoid damaging your credit report, as you will be paying just one monthly sum. Managing your finances should be easier, helping you make sure enough money is left aside for your repayment.

Disadvantages -

1. If you make smaller payments each month, it means you could be in debt for longer, as the debt will take longer to pay off.

2. If you repay your debt more slowly, you could end up paying more interest than if you had paid your debt off sooner.

3. Debt consolidation is unlikely to be an appropriate solution for people whose income is unreliable, as they would not be able to commit to making the repayments.

The earlier you seek debt help, the more options you should have to become debt free - if you are worried about your finances, it might be best to contact a professional debt adviser sooner rather than later.