Top Reasons to Consolidate Debt PDF Print E-mail
Written by Chris Blanchet   
Friday, 24 July 2009 08:57
When it comes to simplifying your finances, it often makes sense to sacrifice financial benefits in the short-term in order to reach longer term financial goals. With that in mind, we will discuss the top reasons to consolidate debt here and try to illustrate how some of the pitfalls can yield better long-term opportunities.
by ChrisBlanchet


When it comes to simplifying your finances, it often makes sense to sacrifice financial benefits in the short-term in order to reach longer term financial goals. With that in mind, we will discuss the top reasons to consolidate debt here and try to illustrate how some of the pitfalls can yield better long-term opportunities.

Simplification

As one of the top reasons to consolidate debt, simplicity is key. Bringing all of your debt (and debt payments) into a single debt with a single payment allows you to budget better for the balance of the month. The stress this alleviates now that you have only one payment instead of many cannot be underestimated. But...

The disadvantage with simplicity is that it often comes at a cost. These costs can be pure in terms of paying a higher interest rate or speculative in the sense that you often have to surrender your revolving credit, which you may need to draw on at a later date. So as far as top reasons to consolidate debt, simplicity might not seem like such a bonus.

Debt is Paid in Full

With most consolidation loans, approvals are given on a term-basis, meaning the amount you consolidate will be fully repaid at the end of the term. Clearly, this is another one of the top reasons to consolidate debt, especially for people who are having a tough time paying down their revolving credit.

Improved Future Cash Flow

While improving cash flow was noted earlier (under simplicity) as one of the top reasons to consolidate date, increasing future cash flow is also an often overlooked top reason. What this means is that if you have sacrifice, say, monthly savings of $200 toward retirement so that you can repay a loan of $400 per month, you will quite likely still improve your future cash flow. The reason for this is simple. Instead of saving for the next twenty years, you could repay debt in the next five. But in five years with all of the debt repaid and $400 extra dollars at your disposal, you would only have to save $340 of the available $400 to arrive at the same financial milestone you would reach if you continue saving $200 today. That would leave an extra $60 to improve cash flow or, better yet, give your retirement savings a nice little boost

Of course, these are just three of the top reasons to consolidate debt: simplification of cash flow, guaranteed elimination of debt, and improvement to future cash flow. With each of these top reasons however come some pitfalls, usually in terms of cost and lack of flexibility. Be sure you understand all of the benefits and disadvantages before you consolidate debt and make a commitment to such a lender.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

With more than 16 years of financial services experience, Chris Blanchet is the author of the e-book, Help Fix My Finances. He maintains a debt-free blog at How To Repay Debt.com and is a regular contributor to Debt Consolidation Opinions.