Potential Benefits and Risks of Debt Consolidation

If you or someone close to you has ever been, or is currently on the brink of bankruptcy, you’ve probably heard about debt consolidation. But it is difficult to ascertain whether debt consolidation is a good option or not.

Some of the risks and benefits associated with debt consolidation mentioned below, will help you decide judiciously, but perhaps first it is important to identify what debt consolidation is.

Debt Consolidation

In the simplest of terms, debt consolidation is an option, which allows a debtor to replace one loan for all the loans that they owe. It must be distinguished from debt settlement, as with debt consolidation your debt is fully paid, without a negative impact on your credit report.

Benefits

Debt consolidation – as mentioned above – allows you to replace one big loan with all your existing loans. This makes it easier for you to manage your finances, as one big loan is much easier to manage. The biggest advantage is that you get a lower interest rate on the loan. With different loans, the interest rates pile up and cost you a lot of money; however, as debt consolidation allows you to replace all your loans with one, your interest rate decreases. Moreover, because of the type of situations this option is particularly suited to, the interest rate is distinctively low.

With lower interest rates, and one loan to manage, you also get lower monthly payments, which makes repayment a much more feasible possibility.

Risks
One of the biggest problems with debt consolidation is that even though you get smaller monthly payments and low interest rates, you might end up paying more in the long run because the debt may take longer to satisfy.

At the time of bankruptcy, many debtors prefer to take a secured loan for debt consolidation because a secured loan offers lower interest rates. But if you’re not careful, you may eventually end up losing a lot if you secured the loan against your house or car.

Another major problem with debt consolidation is that it doesn’t really solve the problem. It doesn’t address the issue of how you got into the mess that you’re in and how to avoid such a situation in the future. It just addresses the symptoms of bankruptcy, which can further encourage instability and a debtor may find him/herself in the same situation again.

If you’re looking for debt consolidation in Cleveland or a free consultation related to your financial conundrum, you need to look no further. Baker, Baker, & Baker LLC has extensive experience and expertise in the area. You can contact them at 216-771-3966.