 TITLE: Pros and Cons of Debt Consolidation CONTENT: Using a Debt Consolidation Company to Consolidate Your Debt \n------------------------------------------------------------\n###### Written by: Kristy Welsh\n_Last Update: June 12, 2017_\nIt seems these days that more and more Americans are falling further into debt. If you have fallen behind on your payments, it can feel like there’s nowhere to turn for help. One possible option to get organized and streamline your bills is to go the route of debt consolidation. Debt consolidation lets you roll several debts into one loan with a lower interest rate and longer payment term. That means you’ll pay less each month to just one lender instead of making payments to multiple creditors.\nWhile it’s not as drastic as debt settlement or debt management, debt consolidation has its own pitfalls that you need to be aware of. If you need help educating yourself on your debt consolidation options, read on.\nWhat is Debt Consolidation?\n---------------------------\nDebt consolidation is when you consolidate your debts by taking out a new, bigger loan to pay off a bunch of your existing debts. Instead of paying several different creditors, you’ll be paying a single bill for the new loan. Your monthly payment will likely be lower with the new single loan than the combined payments of your previous debts. Unlike debt settlement, you do not actually reduce the principal amount you owe — you will still be paying the full amount.\nDebt consolidation is not without risks. Experts warn against consolidation unless you’re truly struggling to make minimum payments on your debts each month and are ready to turn over a new leaf with your spending habits. Here are the pros and cons of debt consolidation.\n### Pros\n*   **Short-term relief.**  A single loan with a lower interest rate, spread out over a longer term, can drastically reduce the amount you pay each month.\n*   **It’s easier to stay organized.**  It can be hard to keep track of several bills and monthly due dates, leading to more late or missed payments, but it’s easy to remember to pay just one bill.\n*   **No damage to your credit.**  Debt consolidation keeps your credit intact since you’re still paying off all of what you owe. This isn’t always the case with debt settlement, debt management plans, and bankruptcy.\n### Cons\n*   **Long-term pain.**  Your lower monthly payment is usually the result of a longer payment term, not just a lower interest rate. In other words, instead of paying a lot for a short period, you’ll be paying a little for a long period. And you might be paying **much more** in interest over the long run, once it’s all said and done.\n*   **Big risks, depending on your new loan.**  If you use a secured loan to consolidate your debts, the collateral associated with that loan (for instance, your house) will be at risk if you can’t make your new payments. Falling behind on an unsecured loan isn’t as dire, but it could still trash your credit score.\n*   **You’re fighting debt with debt.**  While debt consolidation can work for the fiscally disciplined, bad habits might be the reason you’re considering consolidation in the first place. If you do not change your habits, you may end up much deeper in debt than you were before you consolidated.\nTypes of Debt Consolidation Loans\n---------------------------------\nThe first type of loan is a **secured loan** which is tied to some sort of collateral - a valuable asset that the lender can take in the event you no longer pay your bills. Common collateral includes your house or car. It’s easier to get a secured loan since there is less risk to the lender. For the same reason, it’s also usually easier to get a larger amount at a lower interest rate. The interest may also be tax-deductible.\nOf course, while it’s easier for you to land this kind of loan, you could also lose your assets if you default. You may also be paying down this kind of loan for much longer. Home equity loans are among the most common kind of secured debt consolidation loans.\nThe second type of loan is an **unsecured loan** which is not tied to collateral. Because of that, it’s less risky and if you default on this loan you are only risking credit damage instead of an asset. Unsecured loans also usually take less time to pay down.\nHowever, getting an unsecured loan is tougher, especially if you have bad credit. Because the lender takes on more risk with unsecured loans, you’ll probably be offered a higher interest rate and a smaller amount, and there are no tax benefits. Personal loans, credit-card balance transfers, and loans offered solely for the purpose of debt consolidation are among your options here.\nAlternatives to Debt Consolidation\n----------------------------------\nIf debt consolidation doesn’t seem quite right for your situation, there are several other debt-relief methods. Of course, all of these strategies have their own pros and cons, and only you can decide whether they are better or worse for your unique situation.\n*   Credit Counseling\n*   Debt Settlement\n*   Debt Management\n*   Bankruptcy\nAvoid Debt Consolidation Scams\n------------------------------\nIf you’re in the market for a debt consolidation loan, remember to keep your guard up. Unscrupulous companies target people seeking any form of debt relief, including personal loans. Here are some things to keep in mind:\n*   **You don’t need a middleman.**  Many companies that claim to offer debt consolidation actually are pushing debt management and debt settlement. If you are simply looking to consolidate, no one needs to negotiate with your creditors for any reason.\n*   **You should be the one to initiate contact.**  Shady lenders are more likely to aggressively search for and hound potential borrowers.\n*   **You shouldn’t pay upfront fees.**  You should never be charged simply to apply for a debt consolidation loan.\n*   **Be wary of guarantees.**  Legitimate lenders simply can’t guarantee that you’ll qualify for a personal loan without knowing your income, credit score, and other personal information. If you see such a guarantee, move along.\n*   **Reject scare tactics.**  Legitimate lenders will not discourage you from searching for the best deal or pressure you into borrowing more than you can afford.\n*   **Do your homework.**  Look at the company’s Better Business Bureau rating and any other online reviews you can find. Almost every company will generate complaints, but some will generate far more than others.\nDebt consolidation can be an excellent option if you’re ready to dig your way out of debt for good. A debt consolidation loan will allow you to stay organized and pay off your debt with a reasonable interest rate and affordable monthly payment. END