Pros and Cons of Consolidating Your Debts

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Being in debt kind of stinks. Well actually, it really stinks. It stinks to see your paycheck get eaten up by spending you’ve already done, it stinks to feel like you always owe someone money, it stinks to feel like you can’t do the things that you want to do because you have debt hanging over your head.

In an effort to get ahead, a lot of people struggling with multiple debts consider consolidating them into one payment. After all, consolidating is fairly easy to do with so many offers for consolidation loans out there and so many financial experts recommend it, how could wrapping all your debts up into one monthly payment go wrong?

While in many cases consolidating debts makes a lot of sense, it isn’t always a smart move. Take a look at the information below before you decide whether or not consolidating is right for you:

Pros of Consolidating Your Debts

  • Lower interest rate (potentially) – If you get a good consolidation loan that carries a lower interest rate than the debts you currently have, you could end up paying substantially less in interest. This is obviously good for your overall financial picture.
  • Smaller monthly debt payment (potentially) – If you’re able to get a consolidation loan at a low interest rate, your total monthly payment to your debts will be lower, maybe even a lot lower. This will free up some funds for you to put some money into savings.
  • Easier financial management – Remembering the due dates of all your debt payments is probably a hassle, so consolidating your debts into one monthly payment is much easier from an organizational standpoint.

Cons of Consolidating Your Debts

  • Higher interest rate (potentially) – A lot of people jump right into a consolidation loan without taking a hard look at the interest rate. If you can’t find a consolidation loan with an interest rate lower than the debts you already have, consolidating doesn’t make sense.
  • Opportunity to get into more debt – If you pay off your credit cards with a consolidation loan, that means that you have a lot of available credit with which to potentially do some damage. If you feel that you can’t be trusted with this kind of spending power, consolidating might not be for you.
  • Treatment of a symptom, not a cause – Consolidating debts makes it easy to ignore an overspending problem. If reckless spending is what got you into debt, consolidating isn’t going to solve the issue. In fact, it might do more damage because you won’t have felt the full “pain” of having to repay each debt individually, making it likely that you’ll end up in debt all over again.

As with most financial decisions, figuring out whether or not consolidating your debts is right for you is a highly personal choice, so use the information above to help yourself along.

About Lindsay Meredith

Lindsay is a high school teacher and personal finance blogger. She lives, works, and plays in the Washington, D.C. area.

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