Accumulation of debt can be a scary thing. Whether you have a general spending problem, like to buy homes or toys, or rely on personal loans or credit cards to get by, it doesn’t take long before you can find yourself drowning in bills each month. When considering solutions to getting out of debt, you can meet with an attorney at DZ Law to learn your options. We’ll help you decide between filing for bankruptcy and debt consolidation in Knoxville, TN. If you’re considering debt consolidation, know that there are pros and cons of both. We’ve outlined some of each below.
Pros of debt consolidation
Simplifies your finances
When you have piles of debt that you’re trying to deal with, it can be tricky to manage income and due dates for individual payments. When you consolidate your debt, you’re putting it together into one single location. This allows you to make a single payment each month as opposed to stretching your debt payments across the course of the month.
Possibility of a lower interest rate
Consolidating your debt is essentially a method of refinancing, which changes your interest rate. While you might have a low interest rate on one loan, you might have a rate that’s sky-high on something else. Overall, you could end up with a lower interest rate, which makes for a lower monthly payment. This is because, in addition to paying part of the principle of your debt each month, you’re paying a portion of the interest that will be accrued over the course of the debt. If you’re paying less interest on your debt, you can pay more toward the principal and pay down your debt faster.
Fixed repayment schedule
In addition to simplifying your monthly finances, consolidation allows you to see exactly when you’re going to have your debt paid off. If you have five or six different debts that you’re trying to pay off, it can be difficult to have a clear picture of how long you’re going to be paying those down. With a debt consolidation loan, you know exactly when your debt will be paid off based on your loan repayment schedule.
Cons of debt consolidation
Refinancing and applying for loans often come with fees. This is no different in the case of debt consolidation. While consolidation loans can give you a lower monthly payment with a lower interest rate, you could potentially grow your debt with the fees that are attached. It’s important to understand how much you’re going to be paying in fees and the impact that will have on your total debt and monthly payment.
Possibility of a higher interest rate
As previously mentioned, there’s a possibility of a lower interest rate on your debt with a consolidation loan. However, you also risk a high interest rate. Crippling debt can have a terrible effect on your credit score, which makes it difficult to get a good interest rate. A higher interest rate means a higher monthly payment and a debt consolidation loan might not be the best route for you.
A temporary solution to a long-term problem
Debt consolidation can be an excellent solution for many people with large amounts of debt. However, if you don’t change your spending habits, it won’t help at all. A single monthly debt payment can make us feel like we don’t have as much debt and we can take on more by continuing to spend. If you’re considering a debt consolidation loan, make sure that you’re ready to change your spending habits for good.
Get in touch with DZ Law
If you’re searching for a solution to your debt problems, DZ Law can help. We’ll assist in reviewing your debt and present options and go through possible solutions. If you’re considering bankruptcy or debt consolidation in Knoxville, TN, get in touch with our team today.