First, let's talk about exactly what debt consolidation is. There are two different aspects of consolidation. First, it could be in the form of a loan, in which one creditor pays off all the other creditors to create one affordable and manageable monthly payment. The second form of consolidation is a company that negotiates with the creditors to reduce debt and combines them together, without a loan.
The Good in Debt Consolidation
Here are five extremely good prospects of consolidating your debt:
One Monthly Payment - this is the most appealing aspect of debt consolidation. Most people carry upwards of ten to eleven creditors at any given time. This means they must make ten to eleven different payments each month, which could be confusing, forgotten, or even too much for one person. With consolidation, you get one payment.
Reduction in Rates of Interest - Another very appealing aspects is the fact that interest rates are generally reduced. Depending on which type of consolidation you go with, you might find your interest rates are significantly reduced.
One LOWER Monthly Payment - Not only is your debt combined into one payment each month, but it is also generally lower. This is usually because of lower rates of interest, as well as the fact that the consolidation plan spreads out the payments. In other words, while you might have had three to five years originally to pay off the debt, with debt consolidation you may get more than fifteen years to pay it off.
Less Creditors - This goes along the same lines as the payments. With debt consolidation, especially if you opt for a loan, you will now only have to deal with one creditor. Again, with ten to eleven creditors and payments, it can be very easy to neglect or forget one or more. With consolidation, you get one creditor, one payment, which makes it a whole lot easier to manage and control.
Tax Deductions - If you opt for a debt consolidation loan you might be in for a real surprise. When you are paying all that interest with other creditors, specifically unsecured creditors, you are paying interest with no real goal. The money is simply spent and benefits the creditor and only the creditor. However, if you get a debt consolidation loan, particularly if you turn it into a second or third mortgage, any interest you pay is eligible as a tax deduction.
So there you have it, five good reasons you should consider debt consolidation. Do not forget to read the next article about the bad in debt consolidation, to make a better and more informed financial decision.