The Pros and Cons of Debt Consolidation Personal finance
You could fall behind on payments
If you don’t pay off the new debt, you could end up in a worse situation than you started with.
For example, if you don’t pay off your balance transfer card during the promotional interest-free period, you’ll be forced to pay it off at a higher APR – potentially higher than the original debt.
If you fall behind on a consolidation loan, you could accumulate late fees and missed payments would be reported to the credit bureaus, putting your credit scores at risk.
Before consolidating, make sure the new monthly payment fits comfortably into your budget throughout the repayment term.
You did not fix the root problem
While consolidation is a useful tool, it is not a safe solution for recurring debt and does not address the behaviors that led to debt in the first place.
If you are struggling with overspending, consolidation could be a risky choice. By taking out a loan to pay off credit cards, for example, those cards will again have a zero balance. You might be tempted to use them before the new debt is paid off, plunging you into an even deeper hole.
If you have too much debt, you might be better off seeing a credit counselor from a reputable nonprofit who can help you put a debt management plan in place, rather than trying to take care of it yourself.