What Are the Pros and Cons of Loan Consolidation?

What Are the Pros and Cons of Loan Consolidation?

Throughout our lives, it is not difficult to build up a variety of debts. This can lead to very easily losing track of our financial situation thanks to the numerous repayments that we must keep up with each month, not to mention that accruing interest can make your debt snowball and leave you struggling to afford your monthly payments.

To avoid this stress and make your repayment plan easier to manage, you may consider consolidating your loans.

For many people, consolidation is a very viable option that can help them regain control of their finances. For others, however, consolidation may not be the right choice. Read on to learn more about how debt consolidation works and how you can begin to decide if it is right for you.

What Is Loan Consolidation?

If you are looking to pay off debts and loans with as little hassle as possible, debt consolidation programs may be able to help. Consolidating your debts allows you to move your loans into one manageable monthly repayment.

This works by borrowing a single, larger sum of money and using this to pay off your existing creditors. Your lender will then arrange a monthly payment schedule that is a lot less stressful to manage, partly because instead of worrying about making several payments, you will just need to focus on one.

Additionally, loan consolidation often allows you to lower your monthly payments, which may be beneficial if you are having trouble making more than the minimum payment on your loans.

No matter what kind of loans you have, there are ways to consolidate them. Some loans, like student loans and certain mortgage loans, can even be consolidated through the federal government. Others will have to be consolidated through a private lender.

What Are the Pros and Cons of Debt Consolidation Loans?

Your personal circumstances will determine whether bill consolidation is the right financial option for you, and it pays to think carefully before entering into any binding agreement with a new creditor.

Understanding the pros and cons of this type of loan can make your decision a little easier.

Pro 1: One Payment

The most obvious advantage of consolidating your debts is that your repayment schedule will be far easier to manage. If you have multiple debts and the repayments are all leaving your bank at different times each month, this can be overwhelming.

This is made even worse if you do not use direct debit and have to remember to make all of the payments every month. Many people may forget to make payments and end up with late payments fees and worsening debt.

Finding the best consolidation loans for your situation can take some of the pressure off and make your payment schedule much easier to handle. This is one of the main reasons that people go for this type of debt management option.

Pro 2: Lower Monthly Payment

Another important reason why many borrowers choose to consolidate their loans rather than go with another option like refinancing is because debt consolidation often results in a lower monthly payment.

When you combine your old loans into one new loan, you have the option of extending your payments over a longer period of time. This means that you will pay less every month.

If you are looking into consolidating your loans because you are having trouble making more than the minimum monthly payment (or having trouble making the minimum payment at all), then consolidation may be worth looking into.

By lowering your monthly payments, you are essentially giving yourself some breathing room in your budget. Additionally, you are making sure that you can make a dent in your credit usage ratio and avoiding any missed payments. Together, these factors may have a positive impact on your credit score over time, further increasing your financial stability.

Pro 3: Access to Other Repayment Options (for Federal Loans)

If you have certain loans that were either given to you or insured by the federal government, then federal loan consolidation may give you access to other repayment options.

For example, if you have Direct Student Loans, then consolidating them means that you would be able to go on a repayment plan that is based on your income. This would make it much easier to afford your monthly payments, since those payments would change depending on how much money you make.

Con 1: False Sense of Security

If you have cleared your existing credit cards through a debt consolidation loan, you may be left with the temptation to start using your credit cards once again. But this will ultimately lead to further debt and a never-ending circle of consolidation loans.

If you have opted to take this leap, it is advisable to close any cleared accounts to avoid getting into hot water later down the line.

Con 2: Lower Interest Is Not Guaranteed

There are some consolidation loans that do not offer a competitive interest rate. In some cases, this can leave you in a worse position than you were in before you consolidated. For this reason, it is crucial that you do your research beforehand and make sure that any agreement you sign is going to be beneficial to your financial situation.

Additionally, some loan consolidation options involve upfront fees — this could be for balance transfers, closing costs or an annual fee. This might still work out in your favor. However, it could also mean that you end up paying more than you have done had you kept your existing debts. Once again, it is important to check your options and work out the most lucrative choice for you.

Con 3: Higher Overall Debt

Perhaps one of the biggest negatives to consolidating loans is that you will end up paying more in the long run. When you consolidate your loans, your interest rate on your old loans is added to the principal on your new loan. You then get charged interest on that interest.

Although loan consolidation can leave you with a lower monthly payment, this is only because the actual loan is spread out over a longer period of time than you may initially have had. If you are having trouble making monthly payments, this can be a huge benefit. But if you can afford to make higher monthly payments on your loan, then sticking to your original repayment plan may be better.


Debt consolidation loans may be a great way to remove some financial pressure and make your monthly repayments a lot simpler to manage. While this may be a good idea for some people, however, others may find that a loan of this type is detrimental to their finances.

It is important to weigh up the pros and cons and be sure that you are making the right decision for you. You could stand to lower your interest each month, pay off your debts more quickly and make your finances easier to manage.

By Admin