With the economy in the tanks and your credit card debt piling up you might be considering Debt Consolidation, but is it really the best option? In this article I will discuss the pros and cons of Debt Consolidation to see if it is the right choice for you.
Depending on how many credit cards you are making payments to, it is often difficult to remember to make your monthly payments on all of them. Debt Consolidation can help by making sure that you only have to make one monthly payment and they will pay your creditors. Also many debt consolidation companies will want to set up automatic withdrawals from your bank account. Not only does this provide them with the security that you will always be making your payments, but you won't forget to make your payments. However, this can be a double-edged sword as if you forget to budget for the automatic withdrawal, you could end up over drafting your account.
Another upside is that often times when entering into one of these programs they will work with your creditors to lower your interest rates which will help you have smaller payments and/or pay your debt off quicker.
One of the biggest cons is that you usually have to pay a fee for the use of these programs and depending on various factors (amount of debt, the reduction of interest rates your able to get) this fee may or may not be costing you more than what you are saving.
Another downside is that most of what the program does, you can do yourself with a little hard work. You can call your creditors and often times with enough perseverance you can negotiate a lower rate.
And one of the most potentially dangerous downsides does not actually have to do with the program itself, but the mentality that often times got someone into this situation in the first place, and that is “I have available credit, why not use it”. Often times people will get their debt consolidated and then start charging more money to their credit cards for things they don’t need!
Ultimately I believe that for most people debt consolidation is not the best choice, and that with a good plan, a little hard work, and some stick-to-it-ivness you will be able to pay your debts off without requiring the Debt Consolidation services.
One important point to remember is that to pay your debts off (regardless of which decision you make) you will need to make some lifestyle changes and cut back on your purchasing of those “wants”.