Risks and benefits of debit consolidation

The economic crisis, the global meltdown or the depleting current economic scenario; are these words ringing any bells for you? If the answer is in the affirmative, then you are also probably thinking of ways to sort out the money matters that have gone out of hand. Yes with the present economic conditions it is possible that many people are facing similar difficulties. However there is a way out but with its pros and cons. It is the debit consolidation strategy.
A debit consolidation program can be termed as a big loan taken to pay off the smaller loans. Thus minor payments are consolidated into one single payment. Though the handiness of a debit consolidation is sometimes under scrutiny, you must weigh both the pros and cons before taking up any such program.
Pros of debit consolidation
• The benefits of debit consolidation are manifold. With consolidation it becomes easier to manage and pay off a single debt rather than numerous debts.
• Consolidation also attracts lower rate of interest therefore putting in some spare cash in your hands at the end of each month.
• With the payment of credit dues in time, you can improve credit status and your credit report and you again have credit at hand.
Cons of debit consolidation
• A debit consolidation is generally taken against a secured collateral security that in most cases is your home. Therefore the foremost negative aspect of a debit consolidation is the fear of losing your home in case you are unable to pay off the debit consolidation loan.
• The claim of a lower rate of interest might not be actually low, in the long run. If your payment is spaced out over a long period of time, you might end up paying higher interest over these payment periods.
• A debit consolidation does not eliminate the need to pay the debts. It is actually a big loan to pay off the smaller ones. There is no relief in money owed; whatever is owed stays and only the term of payment and a few options available to you change. So whether debit consolidation is actually beneficial for you or not must be consulted upon.
• With the payment of the higher interest rate loans first like credit card payments, can lure you into making use of the credit available. This not only leads to further debts but also puts you back in the same vicious circle.
So whether you should take a debit consolidation program or not needs thinking. Individual needs decide whether debit consolidation would be actually beneficial or is it another noose, in which you have tied yourself. Earlier the loans or the debts that were outstanding were unsecured but if you take a debit consolidation loan, you are turning your unsecured loans into a secured one. Now the lender is a larger beneficiary as his loan amount is secured against an asset as a collateral security and there is no fear of his losing money. Therefore it is recommended that if you are thinking of taking a debit consolidation, do take the advice from a financial consultant.