Debt consolidation is an effective solution for some individuals, but there are many pros and cons of each option to consider.
The general advantage of debt consolidation is that a consumer can combine debts into one payment, possibly helping to eliminate some of the stress involved in receiving and paying multiple bills.
Beyond that, following is a basic breakdown of three common debt consolidation options, along with the potential pros and cons of each.
Balance Transfer Card
Pros:
- Potentially lower introductory interest
- More funds may be applied toward principal balance
- Possible lower number of credit card payments
Cons:
- Potentially high interest rates after introductory period ends
- Potentially costly balance transfer and annual fees
- May lower credit score if balances are above 30 percent of credit limits
Unsecured Personal Loan
Pros:
- Fixed interest rates in many cases
- Collateral generally not required
- Payments may be made installments
- May reflect positively on credit score by decreasing revolving credit limit used
Cons:
- Possibly higher interest rates
- Repayment terms are generally shorter
- Loan origination and other fees may apply
Home Equity Loan
Pros:
- Possibly lower interest rates
- Interest generally tax-deductible
- Repayment terms generally longer than unsecured loan options
Cons:
- Collateral requirements
- Possible risk of home foreclosure if loan is not repaid accordingly
- Closing costs and other fees may apply
In order to review debt consolidation options, speak with a Georgia Heritage Federal Credit Union representative. If you’re considering a loan, let us help you complete the application. Contact us through our website, or visit one of our credit union branches.
