Advantages and Disadvantages of Debt Consolidation Refinance
Review of the positive and negative aspects of a debt consolidation loan.
When you are considering a debt consolidation refinance there are a few things to keep in mind. Don't be too quick to jump into a new loan without weighing all the factors involved.
Review some of the advantages of debt consolidation:
- Consolidating multiple monthly payments into 1 payment each month.
- Tax deductible interest.
- Improving your credit.
- Home loans have better rates when compared to Personal Loans.
Typically this new payment is lower than the combined multiple payments. You gain the freedom from having to keep up with many different bills and payments each month.
Now all the interest you are paying on those consolidated debts is tax deductible since its part of your home mortgage. This of course is a big deal if you have large credit card debt. Please review any tax questions or scenarios with a licensed CPA.
With the closing or paying down of multiple credit card accounts your credit could see a dramatic improvement. Credit scoring looks negatively on revolving debts that are 'maxed out'. Furthermore, on time mortgage payments have a positive effect, so its a win-win scenario.
The other option for debt consolidation is a personal loan. Those loans typically carry higher rates and therefore higher payments. In addition that interest isn't tax deductible.
Inconveniency of Debt Consolidation
As with many situations there are potentially negative aspects associated with debt consolidation loans:
- You are cutting into the equity in your home.
- Extending the term of the debt.
Experts are divided on the use of home equity for anything other than use for the property itself. It is your decision whether to utilize that equity.
If you refinance into a 30 year fixed loan, you are essentially now paying off that debt over 30 years.
For the majority of consumers a debt consolidation refinance is the correct choice. Be sure to review all aspects as they relate to your individual situation before proceeding. Look to our trused online debt consolidation lenders to get professional service.
Related Debt Consolidation articles
- Is Debt Consolidation Right For You?
- Debt Consolidators Reduce Debt
- Debt Consolidation
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