Everything has good and bad effects both. Debt consolidation also appears with several pros and cons. One major pro is that debtors have to think about the payment of one large amount rather than several small amounts. And a debtor is responsible for one creditor. Moreover, communication and paperwork becomes simple with one creditor.
Another positive thing is that monthly payment of consolidated loan is comparatively less than a debtor was paying for several debts. Most of the time, consolidated loan comes with less interest rate than interest rates of multiple debts on credit cards. This saves huge money of debtors.
But, it has some cons also. It takes years to pay consolidated loan with minimum payment every month. Though, interest rates are less but more money is spending in the long run. Another con is that debt consolidation is a short term solution. It is unable to solve long term debt problems. Debtors again run up credit cards during debt consolidation and at the end again they required to pay more money.
It all depends how one consolidate debt. Some opts for second mortgage where creditors are allowed to take hold of mortgaged property incase debts are not paid on time. In the market, several debt consolidation agencies are available to help people in this regard. They assist debtors in their own way. They work with the objective of making people debt free and save them from getting bankrupt.
Modern debt consolidation agencies go through certain formalities. They ask to customers about total amount of debt, already paid amount, interest with which debtors are paying and last amount of payment to creditor. They assist customers by consolidating monthly payment to creditors. They fix the amount by keeping in mind the running financial condition of customers. Thus, one needs to understand about pro and cons of debt consolidation and opt for the best step of debt consolidation.