In financial difficulties, it often makes sense to apply for debt consolidation loans so as to better manage finances and debt. There are many benefits to consolidating your debts into one monthly payment which includes lower interest rates and lower monthly payments. While consolidating your debt might seem attractive there it is important to consider the debt consolidation pros and cons.

Debt Consolidation Pros

1. Lower monthly payments – Consolidating all your loans into one manageable loan will allow for significantly lower payments compared to all your payments combined. Just having lower monthly payments will drastically reduce any financial stress and will get you on the right path to getting out of debt.

2. Lower interest rates – Since the debt consolidation loan is likely to be a large sum, you will also likely get lower interest rates from your creditors as they are able to negotiate on your behalf. Always remember to shop around for the best deals before committing to anything.

3. Better debt management – Taking action and consolidating all your loans into one single loan will lend itself to better debt management as you are on the right path to getting out of debt. This means less financial stress in the future.

4. Easier to manage – Rather than having to worry about multiple monthly payments like if you had more than credit card bill, everything is put into one single monthly payment. In fact, you can even have your bank automatically transfer funds to pay down the loan so you don’t have to worry about late payments.

5. Government debt consolidation loans – Not many people realize that the government issues debt consolidation loans to help people facing financial difficulties which do not have to be paid back. This means that you can use the extra funds to either pay down your loan either further or to use it for other necessities.

Debt Consolidation Cons

1. Credit score may drop – While this topic is often debated, it has been shown that your credit is likely to drop but not by a significant amount. Any credit score changes caused by debt consolidation are only temporary and your score will increase as you begin paying off your debt.

2. Paying more over the long run – Debt consolidation loans are typically had at lower interest rates over a longer period of time. This means that once the loan is completely paid off, you will have paid more over the long run.

3. Bad spending habits – Debt consolidation loans generally do not lead to good spending habits as many people run up their credit again. Generally, your debt creditor will combine all your credit cards into one easy to manage payment. However, your credit cards are still likely to be active so it is important that you absolutely do not use your credit card otherwise you risk getting into even more debt.

4. May not qualify for other loans - Another consequence that you may face is that it may be difficult for you to get approved for other loans until your debt is completely paid off. If a lender finds that your loans are being consolidated and that you are struggling to pay them off, they may not offer you a loan as they do not want to risk not being paid back.

5. Loan company may get bought out or go bankrupt – Although a rare occurrence, if the loan company that you use to consolidate your debt goes bankrupt or gets bought out by another company then your loans will be transferred to another company who will then be managing your debt. Your interest or monthly payments may change depending on their terms.

While these are some debt consolidation pros and cons, if you are facing financial difficulties it may be wise to consolidate your debt into a manageable payment that’s easy for you. While these consequences might turn you off from consolidating your debt, they might be worth it especially if you are struggling to make ends meet. One thing to remember is that any effect on your credit score is only temporary and will increase as you begin to pay off your debt.