Debt Consolidation Pros and Cons

You need to weigh up debt consolidation pros and cons when making a decision to consolidate your debt.

Although in many cases the advantage of the reduced monthly payment is an overriding consideration, it does come at a cost and it would be well if you were aware of the disadvantages, as well as the highly punted advantages of debt consolidation.

Advantages of Debt Consolidation

• All your individual debts get combined and added to your mortgage at the mortgage interest rate, which is usually your lowest interest rate.
• Because the debts are now part of your mortgage, it means that you will pay them off over the term of your mortgage (eg 20 years).

The advantages of this is that you pay the very minimum in capital every month and the very minimum in interest every month, which helps to tide you over the short term.

Disadvantages of Debt Consolidation

• Your debt is now collateralized. This means that if you can't pay this debt, you can lose your home if the banks come after you.
• You will pay much, much more overall in the long term, since you are now stretching the repayment of the debt out over the full term of your home loan (decades).

Debt consolidation isn't for everyone. The debt consolidation pros and cons need to be considered carefully and you need to fully understand the long term impact and weigh up the risk/reward of debt consolidation for you personally.

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