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It is not uncommon these days for someone who need debt consolidation meant to be saddled with a number of loans or debts – housing loans, car loans, education loans and credit cards. Add that to the business loan that you are already juggling on top of a personal loan that you took from the bank and voila, it comes to a suffocating scenario.
That’s when the advertisement on debt consolidation that you recall seeing in the papers a few days back resurfaces in your mind.
These debt consolidation plans promise to either get rid of your debts or to “consolidate” them. What they do is they actually take all various loans that you are servicing, merge them by usually paying them on your behalf and then you just settle one bill with that consolidation company. Now what you have is called a debt consolidation loan.
Although you could save a little on the interest, there are actually dangers of debt consolidation:
1. You could lose your home
How? Most consolidation loans tie the unsecured debts to the secured one, which is your housing loan. From here, you will find tat you are not able to make new lower payments because you not only still have bad credit but also potentially lose your home.
2. You end up paying more
 How? Debt consolidation companies do not actually lower the interest rates or overall sum owed but merely increase the term of your loans. Your debts are now payable over a longer period and what you fail to realise it that you could take as long as 30 years to pay it off and in the process, end up paying up to three times more the amoun that you actually owe.
It is always wise to get as much information as possible before committing to a consolidation loan. Find out how the company intends to help you with debt consolidation, how long will you take to pay everything off and how will the company benefit from it. By the end of the day, consumer credit counseling and debt management is important in taking control of your financial situation.
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