Although we are at the end of 2015, it’s never too late to add a few more resolutions to your list. If you’re someone who has not been able to follow the ones that you had resolved, here are some more that you follow in 2016. If you have fallen knee-deep in debt and you’re wondering about the ways in which you can get rid of them, consolidation is definitely the best way out. However, there are pros and cons for this approach as well. Read on the concerns of this article to know more on the details.
When should you consolidate your high interest debts?
There are several situations in which you can be at an advantage by consolidating your credit card debts. You can consolidate debts if:
- You can get a low interest rate: If you have a moderately good credit score, you can qualify for a new debt consolidation loan or a balance transfer card at a 0% interest rate. This can definitely ease off your monthly payments that you had been paying towards your multiple creditors.
- You can get a fixed interest rate: If you’re now paying a variable interest rate on your loan, you could definitely feel beneficial by getting a fixed interest rate that remains constant throughout the term of the loan.
- You can pay off debt faster: Due to the alternative repayment plan that is offered to you by your creditors, you can even repay your debts sooner. Your monthly payments will also be lower than before and you can pay back with ease.
When should you not consolidate your debts?
While you know the situations when you should consolidate, here are some situations when you shouldn’t consolidate.
- If you have a poor credit score: If you don’t have a good credit score, it is most likely that you won’t qualify for a personal loan with favorable terms and conditions. In such cases, you should look or other options.
- If you require maintaining higher score: Although debt consolidation later improves your credit, it can temporarily lower your score. If you require maintaining higher credit score, for instance for taking out a mortgage loan, don’t opt for consolidation.
Therefore, depending on your present financial situation, you should make the decision about whether or not to consolidate your debts. Follow the debt consolidation advice mentioned above and get help of a financial advisor if needed.