You go online and you will come across many articles, lauding the merits of debt consolidation. It is no wonder, because these articles and written by those who have personal interest in offering such services. In fact, they do not do this as a service; they ‘sell’ it. Finding out the probable disadvantages of debt consolidation is not an easy thing; it is somewhat difficult. This article might be of help to you in the matter. There is not just one, but more types of debt consolidation are there.
One way of consolidating a debt is to go in for a fresh loan and settle all the existing dues. This is called debt consolidation loan. There is another way; that is to work out on a debt management plan. When you decide to take out a fresh loan, to clear your existing dues, you are in a disadvantageous position as it is somewhat risky. Of course, by getting a fresh loan, you will be able to consolidate your existing debts and there will be only one single payment you have to worry about. But, in practice, you might end up much worse of than previously, unless you are extra careful.
The advice from the lender may seem good and reasonable and you will be attracted by the hint of a smaller monthly payment. But actually the term will be long and, t the end, you will find your total payments are much more than what you would have paid on the old debts. Another minus point – the lender would suggest inclusion of all your existing debts and go in for a very big loan, so that you pay all your current dues. Though this may seem attractive, you have to be careful while applying for debt consolidation.
Some of your existing debts may carry only low rates of interest; and, in its place, if you take a new loan at a higher rate, you are sure to end up paying more. So, it is better you check and include only such loans that carry higher rate, in your debt consolidation. It will help you to deal the debt consolidation through a debt management plan (DMP). A debt advisor, with vast experience, negotiates with all your creditors, on your behalf, and tries to secure a new arrangement for clearing your debts. It will reduce the monthly payment amount, as a result of reduced interest rate and other charges and writing off of penalty fees, etc. Once negotiations are completed, you will have to make a single payment to the company; they will deal with your creditors. There is no fresh borrowing here and the debt company provides additional free services regarding budget planning.
There is one disadvantage in going through a DMP. The agreements are all informal, so the creditors may not participate, if they so wish. Further, there is no protection you can be dragged to court, if a creditor so chooses. Another thing, there are fees involved. The best way out is to get advice from a reputed company, which could b relied upon it will ensure that you get proper advice as to which type of debt consolidation is good for you. You can, on your part, get proposal from various companies and compare them before proceeding further.