All of the many benefits of debt consolidation may leave little doubt that it’s the way to go. One reader asked if there were any down sides to debt consolidation and here’s what I came up with.
The main down side comes in the form of an opportunity cost. If you take out a loan and use it to consolidate your debt, you’re passing up the opportunity to use the loan proceeds for another purpose. If you could invest that money in a way that was more profitable than the rate of your high interest rate debt, then you might be better off not consolidating. The problem with this idea is that credit card interest tends to be so high that it would be difficult to find a better alternative. Taxes on alternative investments make consolidating even more attractive.
The only other down side I can think of is a little bit of a stretch. By consolidating your bills down to one low monthly payment, you’d hopefully stop using your credit cards. I guess that living a more fiscally conservative, within your means, lifestyle could be considered a downside to someone who likes an extravagant lifestyle.
It’s rather difficult to come up with down sides for something as beneficial as consolidating your debt. While these ideas were more of a thought experiment to answer a reader’s question, just about everyone would be better off financially by consolidating their debt.
For an excellent, low cost way to consolidate, try a P2P loan from Lending Club. Use this referral link to sign up for Lending Club.
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