Debt Consolidation Is Not for Everyone

Let’s keep it real

Stop playing tug-of-war with your credit card company.

Stop playing tug-of-war with your credit card company.

You are overwhelmed with debt. You have eight credit cards that are all maxed out. Making the minimum payments is causing much financial stress, and you are not making any headway on getting out of debt. What can you do? Get help, get debt counseling, find someone who can help you with the necessary information to manage your debt.

Today, many people feel that securing a debt consolidation loan is the best option. A debt consolidation loan is a single loan, which pays off other loans and specific lines of credit. It’s likely that you have seen advertisements, and the claims that are made by these firms seem to have a measure of validity. Are debt consolidation loans a good idea for you? Let’s take a look and see if a debt consolidation loan is right for you.

Debt consolidation can decrease stress

A major benefit of a debt consolidation loan is that you are obligated to make one payment instead of many. For people who mismanage their bills, this can be a great stress reliever. Obviously, managing your bills with one payment makes managing your finances much easier.

Save money with lower interest

Secondly, most debt consolidation loans will provide the borrower with reduced interest rates. The most common type of debt consolidation loan is generally a home equity loan or second mortgage. Because a mortgage or home equity loan is a secured debt, the interest rates will be significantly lower.

With a secured loan comes the added benefit of a lower monthly payment. This perhaps is the best benefit to securing a consolidation loan. If you are like most families, you have a certain amount of money every month. That money is distributed to various creditors and expenses. If the total sum of that money is lower, obviously you will realize the benefit.

Simplify your financial situation

The benefit of having one creditor means that if you do suffer financial difficulties you will deal with one creditor instead of numerous phone calls from a number of different creditors. If you have ever experienced creditor phone calls you most certainly will count this as a benefit.

If your debt consolidation loan is a home-equity loan, you will also get a tax break each year. While credit card interest rates are not typically deductible, the full interest amount is deductible on home-equity loans. Subsequently this is an added benefit for you.

Don’t be too hasty

The negatives to consolidation loans are that it is easier for you to get back into debt. With more money left over at the end of the month the your credit cards all freed up, you may end up in the same spot you were when you took out your debt consolidation loan.

The most obvious negative to a consolidation loan that is secured with a home is you run the risk of losing that home. Because your consolidation loan is backed by your house, failure to make payments in a timely fashion could result in foreclosure.

Times should be a-changin’

Consolidation loans serve as a remedy for many people to relieve financial difficulty. For others, it may lead them to more financial difficulty. Consolidation loans are not for everyone, and everyone should evaluate their situation and know their level of fiscal responsibility.

The bottom line is, if you have mismanaged your finances in the past, you are at risk to do so again unless you make some significant changes. Weigh your options carefully, and plan accordingly.

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