Debt consolidation is not for everyone. Understand that although debt consolidation can reduce monthly payments, it also has disadvantages. Before deciding on a debt consolidation plan, consider the important facts below:
- While consolidating your debt can reduce your monthly payments, this does not change the overall balance of your debt . In other words, you will always have the same amount after consolidating your debt as you did before – you will pay only less interest per month.
- If your consolidation loan has a lower interest rate than the debts it replaces, it usuallymeans that it will have a longer repayment schedule. For this reason it is possible to pay more money generally with a consolidated loan than with a single.
- Depending on how it is used, debt consolidation can damage your credit score. The demand for any type of loan may result in a small temporary decline in your credit scores, but if you use a consolidation loan, for example, pay and close multiple credit card accounts, the damage may be more significant and lasting , As this can maximize your use of credit.