Pros and Cons of Personal Loan Debt Consolidation

The levels of consumer debt in the world today are beyond what most people could have imagined merely a decade or so ago. In the lead up to what has since been labelled as Credit Crunch in the latter part of 2008, it often seemed that banks and credit card providers were willing to afford loans or credit to virtually anyone who applied. This has of course spelled abject disaster for many and has left many more yet treading a thin line between solvency and insolvency.

One of the most common ways for those with a number of outstanding debts which are fast becoming unserviceable to find help is by looking to consolidate all their debts with one provider and thus be making only one, reduced monthly payment. Applying for a debt consolidation loan of this type can allow people to make a new start and gain control of their personal finances, in a way which would otherwise not have been possible. It is important, however, before taking such a big step, that potential applicants consider carefully and in full all of the pros and cons of personal loan debt consolidation.

The pros of personal loan debt consolidation

In precise terms, personal loan debt consolidation is where a consumer applies to one particular lender for a loan, sufficient in amount to pay off all other outstanding debts and bring them all together under one roof. The biggest pro in this respect is that the total monthly outgoings to service the multiple debts is likely to be reduced significantly. This is because payment will only be made to one company and such as minimum monthly repayments on credit cards will no longer be an issue.

Personal loan debt consolidation also makes for considerably easier organisation of your personal finances. There will not be multiple payments to be made at what are probably different times of the month, leading to frequent confusion as to what is due to be paid to whom and when. It should be possible as a result of this to restructure other household bills to take a lot of the work and worry out of the process.

Credit cards, store cards and the likes usually have a significantly higher rate of interest applied to them than personal loans. Depending upon how the loan is structured and over what period it is taken, this may very well mean that the total amount paid back to repay the debt is significantly less, due to a lower interest rate.

The cons of personal loan debt consolidation

These factors will largely be determined by the nature of the debt which is consolidated and the interest rate and term of the personal loan. Just as personal loans can have a significantly lower rate than many card based products, the rates are equally likely to be higher when any form of zero percent finance was in place. This could conceivably mean that where promotional credit or store cards form part of the debt repaid with a personal loan, or perhaps a discounted car finance loan, the amount repaid will actually prove in the long term to be greater. It may even be the case that the term required to be taken on the personal loan will be longer than it would have taken to repay the individual debts, meaning that the perceived stranglehold exerted by the debt will last longer.

In order to effectively weigh up the pros and cons of personal loan debt consolidation, it is imperative that the terms of the loan be ascertained in detail, prior to signing any agreement. The information obtained should most importantly include the APR (effective interest rate applied, allowing for any charges imposed,) whether this rate is fixed for the term of the loan or variable, the term of the loan and any early repayment charges which may be applied. By obtaining similar information for your existing debts, time may be taken to conduct a price comparison exercise and decide in an informed fashion the best course of action with which to proceed.

There are many countries and domains which have professional, Government operated debt consultancy services. Where any doubt exists regarding the correct course of action to follow in respect of a debt consolidation loan, a Google search or consulting the Yellow Pages to obtain contact details for such a body may well prove invaluable.