Direct Loan Consolidation – Pros and Cons

Many people find that over time they have accumulated more debt than they can repay. When that happens, there is a reinforcing downward spiral. The inability to repay the debt leads to additional interest charges and penalties, making it still harder to repay the amount owed.

One common suggestion for breaking this vicious circle is to employ a direct loan consolidation. For thousands, this has seemed like the way out, the way back to financial health. But there are pros and cons to a direct loan consolidation that you should be aware of.  Here at Debt Relief USA we’ll share with you what you need to know to help you decide if it is the salvation in your particular debt problem.

First, what is a ' direct loan consolidation'? At base, it's a simple proposition. Gather all your multiple sources of debt into one easier to manage debt and make a single payment every month to a single debtor.

But for that to be helpful several things have to take place at once. After all, whether you pay $250 + $30 + $15 to three debtors or $295 to another it's the same amount. With online bill payment processing it isn't even necessary these days to pay out three different checks. You aren't even saving on postage stamps!

In order for a direct loan consolidation to be a benefit one or more of the following has to occur:

(1) Either your total monthly payment has to decrease, or,
(2) The net amount of interest has on what you owe has to decrease, or,
(3) The actual total debt has to go down as a result of consolidation.

Which, if any, of these take place depends on the specific direct loan consolidation plan you have arranged

In an ideal world, which rarely happens, all three take place. The most common scenario is that the monthly payment is lowered. This has several advantages to people who are debt ridden. When the payment is lowered, you have a much higher chance of being able to pay the off the balance consistently.

That helps prevent piling more debt (interest and late charges) onto existing debt. You also have a much more relaxed frame of mind, knowing you can meet the monthly debt repayments without sacrificing other needed items.

The risk is that if the payment is too low, some of the psychological factors that led to excessive debt in the first place can rise again. Thinking you have lots to spare can cause you to relax too much too soon. Continual worry is not healthy; commitment and concern are - if your goal is to become debt free.

Unfortunately, many direct loan consolidation plans lower that payment by extending the life of the loan long enough to cover paying off the entire original amount owed. That leads to more interest paid over the long term. That's fair to the lender, since you do owe the money. But some will settle for less if they have good reason to believe they will actually get repaid.

Our advice here at My Debt Relief USA is to ray to negotiate a lower settlement, then consistently make the agreed on payments every month.

Becoming debt free is like losing weight. Consistency, and a commitment to lower it, and keep it lowered, is the key to long-term success.  With this in mind and the advice shared in this article, a direct loan consolidation plan can benefit many that are in debt.