The Pros and Cons of Debt Consolidation

Consolidation of debt on loans involves the consolidation of both large and small debt into one debt. This combination allows the debtor to repay the consumer, mortgage, and other loans in one place. This is very convenient, especially for the debtor.

Why is Loan Consolidation Most Beneficial for the Debtor?

Having completed the consolidation of all loans, the borrower receives a number of advantages that are worth considering in more detail:

  • The consolidated loan can be provided on more favorable terms for the borrower;
  • The person is completely released from past credit obligations;
  • The cost of repaying a general (consolidated) loan may become lower;
  • Reducing the number of late payments;
  • The convenience of debt repayment.

Consolidation of Credit Card Balances

The borrower can combine multiple credit card balances into one loan. Many banks welcome this combination offering borrowers a lower or zero interest rate if they transfer payment of credit card balances to their card.

The benefits for the borrower of pooling credit card balances:

  • Savings on interest on debt payments;
  • The debt that has been consolidated is repaid faster;
  • You do not need to pay your debt to different banks.

The disadvantages of this method include:

Consolidation of Various Debts from Credit Cards into One Loan

The advantage of this method is that the borrower can pay off his debt at a lower interest rate.

Advantages of the method:

  • The low-interest rate for debt repayment;
  • Improved credit rating;
  • Fixed monthly loan payments.

Cons of the method:

  • The repayment amount of the monthly debt will be slightly higher than the payments at the credit rate;
  • In some cases, this method contributes to even more debt accumulation.

Debt Restructuring

Debt management (restructuring) refers to an agreement between a credit institution and a borrower to change the terms of loan repayment. These changes include:

  • Change in terms and amounts of payment;
  • Debt repayment of shares of property;
  • Writing off part of the debt.


  • This is a real chance to reduce the borrower’s loan burden;
  • Allows the borrower to get rid of debt as quickly as possible.


  • Inability to get a loan until the old one is repaid.

Any debt is a burden for a person. And if there is no way to repay it, you should seek ways out of a difficult situation. Consolidating your debts is a real solution that really works.

Main Advantages and Disadvantages of Debt Consolidation

There are many reasons why people are considering debt consolidation. However, it is important to understand that when it comes to debt, it is not easy.

Pros of Debt Consolidation

Some of the great benefits of debt consolidation include:

  • A debt consolidation loan can be attractive if you have multiple payments. Perhaps you used your credit cards when you were in business school, or you have a number of high-interest installment loans (student loans, car loans, etc.). A debt consolidation loan allows you to consolidate all these payments into one payment.
  • If you find it easier to pay your payments, you may avoid late fees, additional fees, and bad credit that will arise when you can’t afford to pay recurring bills.
  • It may be possible to get a lower interest rate on a debt consolidation loan (or at least a rate that is lower than the current rates you are paying on your debt).

Cons of Debt Consolidation

Debt consolidation may not be the answer for some people. In fact, it can do additional harm to your financial situation. You should consider all the cons of debt consolidation before making any decisions.

Some of the more common disadvantages include:

  • Debt consolidation does not reduce debt. So a debt consolidation loan may actually do nothing to help your financial situation.
  • It can be really difficult to find fair interest rates for debt consolidation loans. If the rate on your new loan is no better than the rate you are paying on your current debt, consolidating your loans or credit card debt won’t make much sense.
  • Debt consolidation makes debts more expensive and takes longer to pay off. Remember that when you consolidate debts, you should still have the same amount of money. The difference is the length of the term. A long term may mean that you end up paying more money through interest. Use a debt consolidation calculator to get the numbers back.
  • If you work with a debt consolidation company, you don’t take out a loan: you give them money every month and they pay your creditors. Debt consolidation companies are there to make money. And some of them are scams. So, you need to be careful who you hire to help you with your debt problem.

Does It Make Sense to Consolidate Debts?

Debt consolidation is just one of the possible solutions. It just depends on your current financial situation. If you are trying to decide if debt consolidation can help you save money, you should see a financial professional who will help you calculate the numbers. You may also want to consider credit counseling to a non-profit organization such as the National Endowment for Credit Counseling.

How to use the Debt Consolidation?

  • Calculate the required loan amount and a comfortable monthly payment in the mortgage calculator;
  • Prepare the required package of documents;
  • Set up any date convenient for you for the transaction and receipt of funds.

You can get money to pay off current debts immediately after signing the loan agreement on the day of the transaction in any convenient way: in cash, to a bank account or you can get quick cash here.

What documents may be needed:

  • Passport;
  • Documents of title to the property assumed as collateral;
  • Certificate of income or simply in the form of a bank, if you plan to confirm the presence of official income.

If it is not possible to confirm with certificates the amount of official income sufficient for the required loan amount, you can take up to 3 co-borrowers. It is also possible to consider income from entrepreneurial activities of individual entrepreneurs from their own businesses.

When Should Consolidation Be Performed?

The consolidation procedure involves the combination of several loans for the subsequent repayment of the aggregate amount of the debt by the borrower. The option is provided by banking institutions during complex refinancing programs. A loan merger can also be ordered as a separate service aimed at changing the baseline of several financial agreements.

To cope with the obligations under the loan agreement without the risk of late payments, it is necessary to properly manage the debt. Debt repayment is a difficult task if the borrower is applying for several loans at the same time. When servicing the resulting obligations threatens with fines and other sanctions, a logical solution is to revise the original agreements with the subsequent consolidation of loans.

Reasons for Loan Consolidation

  • The emergence of temporary financial difficulties due to a decrease insolvency;
  • Systematic errors in making payments due to confusion with contributions;
  • Reducing the total amount of overpayment by revising the size of rates and commissions;
  • Possibility of significant improvement of lending conditions and optimization of the level of financial burden.

If a borrower needs to pay off several debts at the same time, unpleasant situations may arise associated with confusion at the stage of making regular payments. During the month you need to deposit different amounts to the settlement accounts of creditors. By mixing up the fees, the client will make a trivial mistake. As a result, an overpayment is formed on one of the loans, and overdue payments on the rest with penalties.

Debt Consolidation Recommendations

Borrowers are often faced with force majeure and unforeseen circumstances. As a result, the level of solvency decreases, and problems arise at the stage of returning the borrowed money. When deciding to revise the parameters of the initial agreements, it will be necessary to assess the benefits of the planned activities, including consolidation. Occasionally, this option can aggravate your financial situation. Therefore, the main question is whether it is worth consolidating problem loans.

Show More

Related Articles

Back to top button