The Dangers Of Debt Consolidation

Saturday, July 14th, 2007 at 2:19 pm

With interest rates at an all time low on credit cards and personal loans many people think they can charge up more debt and just get a debt consolidation loan at a low rate and knock the bills out under one payment.

Before considering this please take these 7 factors into mind:

1. Debt consolidation is a temporary fix. It only fixed the problem, not what caused you to get into debt in the first place. When someone has to resort to debt consolidation they have a spending problem.

2. Many lenders have hidden fees on consolidation loans. Not to mention the expensive insurance. On top of that consolidation loans typical have a higher interest rate than personal loans.

3. A lot of consumers will run up additional debts while on a consolidation plan. The will start seeing the extra money and start spending again. It is imperative that you do not do this. You will find yourself in more debt that you originally started in.

4. Many lenders will only grant secured debt consolidation loans. This means you have to put up collateral. So if you fail to pay off the loan, you may lose your home or automobile depending on what collateral you use.

5. Credit insurance will only add to your debt. Many lenders say it’s a must to have, but it can easily add to your total debt. If you had a consolidation loan of $5,000, insurance could peak you out at around $6,500.

6. Debt consolidation can hurt your credit score. However, not taken care of your debts can hurt it even more. Bankruptcy will hurt you the most.

7. Debt consolidation may provide quick relief but you may just end up paying a lot more than you expected with hidden fees.

In conclusion debt consolidation can be a very risky escape when you are in debt. Take time to research your options.