Debt has a very veracious appetite, and it is very similar to weight gain. It can start out gradually, then before you know it, it can be out of control. The only difference is, you owe thousands of dollars to multiple people instead of being many pounds overweight. When this debt reaches a high point of frustration, a consolidation loan can be used to help dig yourself out. It comes with both pros and cons.
Low Interest
Credit card and mortgage companies charge a certain amount of interest when you are indebted to them. Credit card debt is unsecured, meaning that there is nothing to take as collateral if you were to not make the payments. Mortgage debt is secured, meaning the bank can take your house if you do not pay your fees. Credit card interest can reach almost 30 percent in certain situations. Mortgages, on the other hand, are usually in the single digits. When you get a home equity consolidation loan, you can expect to pay a lower interest rate.
Convenient
With consolidation loans, all of your debts are paid off by the lender and you then owe one payment a month. This is more convenient than paying multiple companies, and it makes it easier to track your financial situation.
Payments
When you get a consolidation loan, you end up paying less than you do when you pay off many bills at once. This is a pro and con. You can save yourself money, but this can also cause you to spend money irresponsibly. It can also cause you to start reusing the same credit cards that got you into debt in the first place.
Longer Duration
Consolidation can lead to less money being spent per month, but it can also take a longer amount of time to fully pay off your loan.
Write-off
If you were to get a home equity loan, you can use the interest as a tax write-off, as opposed to the interest paid on credit card debt.
Foreclosure
If you do not pay your credit card bills, the worst that can happen is you will get a bad credit rating. If you get a consolidation loan and you do not make your payments, your home can be taken from you.
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