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Some Dangers Related To Debt Consolidation

Aug 17, 2007
Often people tend to take up debt solution measures to relieve their credit burden, when interest rates charged on loan are on the lower side. In this effort to consolidate their various high interest debts they opt for a less costly loan that is much easier to keep track of and repay. Many of us even want a magical relief just by adopting a new loan that combines all other loans even with rate higher than regular rates.

This is surely a symptomatic relief when you are sure that your credit agency will disburse the existing loans on your behalf and you just have to remember one installment date and abide by that schedule. You can either opt for credit card consolidation loan if you have high debt on credit cards or take up home equity loan or go for any other debt consolidation measure.

However all these will bring in temporary relief and peace unless you completely change the overspending habits. Even after consolidating the high balances if you continue to overspend then you will be back to the trap from where you are trying to get out.

Most of the debt consolidation loans bear an interest rate of 18-21% that is just 4-7% more than regular loans at 14%. So you are paying more anyways to your lender and this is the price for making you hassle free from dealing with multiple creditors which now your debt consolidation agency handles.

Many feel that taking an additional loan is just feeding the financial industry with more profit and other ways of exploiting people who have worsened their situation by bad management of finances. Debt consolidation has become an industry by itself that thrives on people who are prone to financial mistakes and are taking up yet another loan to defeat the previous credit issues.

In most of the cases people who have very bad credit record and are submerged in multiple loans just don't qualify for low interest debt consolidation packages. Many debt consolidation agencies include hidden charges and expensive insurance that are built in the interest rate they charge.

Home equity loans though very popular could lead to loss of your property if you default. Zero percent credit cards will never be offered to you if you do not have an excellent credit performance. A debt consolidation can also affect your credit report adversely as there is an immediate drop in credit score just after a debt consolidation move.

So a good financial planning is better than making a random choice on consolidation. Seeking the advice of credit counselors in times of credit difficulty is the best option before you choose a debt consolidation measure.
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