Should you consolidate your debts? We weigh up the pros and cons
Debt in New Zealand has been slowly increasing over the past few decades, and household debt is higher than it’s ever been in 2018. If you have a lot of debt, you may be considering debt consolidation, which has its benefits – as long as you’re aware of the risks.
Pros of consolidating your debt
If you pursue debt consolidation, you’ll be able to combine all of your debts into one loan, giving you just one payment to make each month instead of several. When consolidating, you can also negotiate a lower interest rate, which could save you money in the long run.
You will also be able to work with one lender of your choice rather than having multiple lines of credit. Aside from being a very convenient option as far as logistics, consolidation can help you pay off your loans faster and may end up being the most cost-efficient option for repayment.
Cons of consolidating your debt
There are a few risks if you are considering consolidating your debts. Your smaller debts will now be rolled into one larger loan, so keep in mind that you will be responsible for making one monthly payment that can be quite large if you retain the same loan term as before.
Some New Zealanders think that consolidation is a quick and easy fix to get lenders off their back, but remember that you are still responsible for making the new bigger payment on time.
Ensure that you are paying attention to the new interest rate, and whether or not it can change in the future. You don’t want to consolidate if your interest rate is going to be much higher than it was originally, as this will cost you more overall. And pay close attention to the term of the loan that you are agreeing to — keeping it shorter is better, since longer terms may cost you more in interest. Always read the new terms from your consolidation provider carefully to ensure that you aren’t overlooking any hidden fees or other strange requirements.
So should you consolidate your debts? There is no easy answer. Debt consolidation in New Zealand is a big decision that does have advantages and disadvantages, so you want to make sure you are fully prepared before committing to anything. To learn more about your credit history and your options, talk to our team at Credit Simple today.
