Irrespective of the economic scenario, everyone gets trapped into debt at some point in their lives. It could be a house that you bought or a car you always wanted, once you borrow money you have to pay it back with interest. It sometimes happens that the vicious circle of debt keeps going and one day people realize that they have borrowed more than can pay. A steady income keeps repayments on track but on the occasion of losing a job or getting a pay cut, repayments seem even more cumbersome. Debt consolidation loans have come to help thousands lead a debt-free life but caused problems for others.

It is important to explore the pros and cons of debt consolidation loans before choosing one as its implications can be many.

The advantages of a debt consolidation loan:

1. The number of payments: One of the biggest advantages of a debt consolidation loan is that there is just one loan to pay off. There is no hassle of remembering the number of loans you have to pay off, their due dates and their interest rates. It is all combined in one that makes it so simple.

2. Lower rates of interest: In most cases the debt consolidation loan demands a rate of interest that is much lower than the interest being paid on the various loans taken. This means that you have to shell out much less every month in the form of interest payments and it will result in quite a large sum over a period of time.

3. Single creditor: Since all your loans are combined to form a single one, you have only one creditor to worry about. This means that there will no more annoying calls from creditors or any threatening letters to worry about. A single creditor also means a definite amount to pay back, a specified time period and only one due date to remember.

4. Tax breaks: Some forms of debt consolidation loans offer tax breaks. For instance credit card dues don’t help you at all but mortgages give you tax breaks.

The disadvantages of a debt consolidation loan:

1. Further debt: By taking a debt consolidation loan you are combining all the payments and not getting relieved from them all together. This debt consolidation loan may become one big loan that is again difficult to pay off and you may be pushed deeper in debt.

2. Bad credit scores: If you are not able to pay off the debt consolidation loan you will get a bad credit score. There is just one payment to make every month and if you miss it, you have to face the brunt of bad credit scores.

3. Risks: Like always there are risks involved. There can be unqualified people giving advice that would land you in trouble. There are counterfeits and scams that are rampant and you may be a victim of one of them. Also with secured loans you always have the risk of losing property if you don’t pay back well in time.

Author Bio: Article written by Svilen Andreev, Founder of Smart Debt Solutions, Inc. For more specific information about debt consolidation loans or just for general information about debt consolidation check out his website at http://www.smart-debt-solutions.com

Category: Finances
Keywords: debt consolidation,debt consolidation loan