The Pros & Cons of Debt Consolidation: Here’s What You Should Know

June 10, 2015

When shouldering a significant amount of debt, you may have various debt relief options, including debt consolidation. As with any option, however, it’s important to understand the possible benefits and drawbacks to determine if debt consolidation would be a good move for you.

Pros of Debt Consolidation

An experienced Colorado Springs bankruptcy attorney points out the pros and cons of debt consolidation. Contact us to find out more about your best debt relief options.

An experienced Colorado Springs bankruptcy attorney points out the pros and cons of debt consolidation. Contact us to find out more about your best debt relief options.

You may benefit from pursuing debt consolidation if you:

  • Can get better interest rates via consolidation – If your credit is decent to good, you may be able to get better interest rates by taking out a new line of credit. If so, then consolidating your debt onto this new line of credit may be able to help you save money (as all of the consolidated date will now have a lower associated interest rate).
  • Have variable interest rates and want to secure a fixed rate – If your interest rates vary from month to month, then debt consolidation can, again, be a good idea, as it can help you better budget for your monthly debt payments (because you’ll always know what the interest is on the debt).
  • Want to reduce the number of monthly payments you are making – Are part of your financial problems stemming from issues managing the number of debt payments you have?If so – and if managing too many payments has led to late payments, then consolidating your debt can, again, be helpful. This is because debt consolidation can help reduce the number of payments you have to make, which may be able to help you more effectively manage your debt.

Cons of Debt Consolidation

Debt consolidation may not be the best debt relief option for you if you:

  • Need to maintain your credit score – Consolidating your debt can have some fleeting impacts on your credit score, causing it to temporarily dip. So, if you need to keep your credit score above a certain level (for a job, because you are planning on buying a house, etc.), then debt consolidation is likely not a good debt relief option for you.
  • Won’t be able to get a better interest rate via consolidation – One of the primary benefits of debt consolidation is getting lower interest rates on debt. So, if you are not able to get a lower interest rate on a new line of credit (maybe because your credit score is too low), then debt consolidation may have little to no benefit to you (aside from possibly reducing the number of debt payments you are making monthly).
  • Won’t be able to make your monthly payments for any reason moving forward – If you miss a monthly payment after consolidating your debts, then any benefits you may have experienced in terms of lower interest rates may come to an end.This is because creditors often include clauses in credit contracts, allowing them to increase interest rates when people miss payments. So, if there is a possibility that you won’t be able to make your payments in the future (because, for instance, your job may be on the line or you may be going through a divorce soon), then you may want to consider alternatives to debt consolidation – like bankruptcy.

Colorado Springs Bankruptcy Attorney at the Law Office of Jon B. Clarke, P.C.

Are you struggling with debt and ready for a financial fresh start? If so, it’s time to contact a trusted Colorado Springs bankruptcy attorney at the Law Office of Jon B. Clarke, P.C.

To find out more about your best debt relief options, as well as how we can help you obtain the financial fresh start you need and deserve, contact us today by calling (303) 779-0600 or by emailing us using the contact form on this page. We also encourage you to complete our Business or Consumer Debtor Analysis Form so that we can provide you with professional advice that is as specific and helpful as possible.

From our offices based in Denver and Greenwood Village, we provide people throughout Colorado with the highest quality debt relief legal services.

Categories: Alternatives to Bankruptcy