What You Must Know About Debt Consolidation Loans
You've probably seen all the advertising done by
consolidation loan companies where they instruct you to come to them, take out
a loan, and silence your creditors. What these debt consolidation companies
neglect to mention is that once your old creditors are wiped out, the
consolidation loan company now becomes your new creditors; and they enforce
much higher and stringent terms of payment.
When you are deep in debt
and just managing to make your monthly payments, a debt consolidation loan
shouldn't even cross your mind. These services advertise their offer of
financial help to reduce your credit strain. And at times, some companies even
try to make consolidation loans come across as debt management services with
promises of reducing your interest rates, penalties; while simultaneously
reducing your credit balances.
But don't end up in their web.
If you think about it logically, a loan can really only increase
your debt load, which you need to eliminate, rather than escalate. You might
think a consolidation loan will be your life guard, but it will only drown you
with more debt to pay-off with even higher interest rates.
But
what is the reality?
What the consolidation loan company claims
is that it is giving you money to clear your account with your creditors. In
reality, they will just terminate milder harassers and end up being big time
bullies themselves. Once you take money from them and pay-off your creditors,
you will realize that you now have to pay the consolidation company more than
what you owed earlier. This is the result of huge rates of interest of
consolidation.
So choose wisely.
Keep in mind that
debt management and debt consolidation services can only provide you with
proper guidance and help in your debt dilemma. Hence, adhere to all the warning
signals and steer clear of consolidation loans when you are already over your
head in debt. Only if your situation becomes so dire that you have no other
options should you seriously consider taking out a debt consolidation loan to
solve your problems.
If you do choose this path, there are a number of
things you should keep in mind.
- A debt consolidation loan in most cases is kind of
a second mortgage. When you face a problem with credit card bills, that’s
an unsecured debt. Taking out a loan will make it secured debt.
If
you leave it as unsecured debt, filing for bankruptcy will discharge the debt
completely. However, if you make it secured debt and try to file for
bankruptcy, your creditor can seize the collateral (your house) if the loan
remains unpaid.
So, be sure to spend the time to decide whether or
not this option is good for you.
- Take a good and hard look at your balance payments
and calculate the time you will require to pay it off with help of
consolidation companies. Then again, consider the time you’ll take to pay
off all debt if you take a debt consolidation loan.
Analyze and
compare both these situations very carefully. Making a decision hastily could
end up forcing you into more debt over a long period of time.
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