2. Good Debt vs. Bad Debt – What’s the
Difference?
By Zulika van Heerden
Before considering a debt consolidation loan, you should have a basic
understanding of what it means.
Debt is a very real problem across the country. The increase in the
popularity of credit cards and high-end consumer products in recent years
has only fed that problem.
As a result, there are now people in the hundreds of thousands who are in
debt to the point that they can’t immediately pay what they owe and that
their personal assets are in danger.
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3. Good Debt vs. Bad Debt – What’s the
Difference?
This means that you end up with a loan that is, yes, larger but has better terms.
Additionally, there are some cases where the company that consolidates your
debt could negotiate better terms or better interest rates with your previous
creditors for you.
When you consolidate your debts, you essentially buy yourself some extra time
to earn some money to pay for those debts you built up in the past. Keep in
mind that debt consolidation by no means forgives you of those amounts owed
and that you will have to pay them back eventually.
Most debt consolidation schemes also have one form of deadline or another, so
you’d better be ready to start paying regularly.
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4. Good Debt vs. Bad Debt – What’s the
Difference?
Cons of Consolidation
Just like any other financial scheme, there are some downsides to
consolidating your debts. For one, it’s rather intimidating to be dealing with
the grand total of all your previous debts, plus interest, even if the interest
rates for debt consolidation loans are usually cheaper.
Because it’s a secured loan, there’s no extending the deadline for payments
on consolidated debts, short of entering into yet another debt consolidation
plan.
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5. Good Debt vs. Bad Debt – What’s the
Difference?
Regardless of whatever variant of consolidation plans you’re looking
at, consolidating your debts really has a lot of pros to outweigh its cons. It’s a
great way to gradually eliminate old and mounting debts without having to give
up certain assets like your house or your car for immediate repayment.
Think of it as restructuring your finances. Sure, it might be nicer to look at if your
debts were several in number but smaller in amount. However, that kind of
arrangement is harder to deal with, especially when different terms are involved.
With a debt consolidation plan, you get everything nice and neat in one little
package, with better terms and a better interest rate thrown in for good measure.
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