Debt consolidation is bundling your debt together and repaying it as a single loan.

If you are considering debt consolidation then you are probably taking a serious look at the entire concept – including the various advantages and disadvantages.

Let us take a closer look at consolidating your debt in New Zealand.

Pros of consolidating your debt

One payment

When you consolidate your debt you will no longer have to repay all your separate debts, like loans, store cards or credit card, in individual payments. Since all your debt is added up and combined into one loan, you will only need to repay the amount set by the consolidation loan.

This does not only make your debt payments smaller, which leaves you with a larger disposable income but it also makes your debt more manageable. You no longer stand a chance of forgetting to make payments since you only have to remember one and you can just keep track of how much you owe much easier.

Lower interest rates

If you take a look at how much accumulative interest you pay every month on the various personal or payday loans and accounts that are assigned to your name, you will be shocked.

When you have to pay interest on various forms of debt, you end up wasting a lot of money. However, you only have to pay interest on one single loan, which could save you a substantial amount of money.

More affordable

Consolidating your debt will end up being far more affordable since you will be giving out less money every month on one instalment than on many. You will save on the admin charges for each individual loan or card that you may have. This will leave you with more money to spend on other things or to repay your loan sooner.

Cons of consolidating your debt

Potentially more debt

Since a debt consolidation loan often leaves people with a larger disposable income, many people take the irresponsible route and incur more debt.

More costly in the long run

While the interest rate might be lower, the loan could stretch out over a longer time period, which will, as a result, could cost you even more.

One way of avoiding this is by paying an extra amount above your monthly or weekly loan repayment if your loan agreement allows for this. It is always important to make sure you fully understand your debt consolidation loan agreement.

You have a lot to lose

Debt consolidation loans are often secured loans. Therefore, if you fail to make your payments you will stand a risk of losing your assets. This is a huge risk to take so if you aren’t completely sure that you will be able to make payments, you must reconsider applying for a debt consolidation loan.