Debt Consolidation

Should I get a consolidation loan?

If youve got a really unmanageable amount of credit card debt, you might be considering a consolidation loan. A consolidation loan is a loan that you can use to pay off all your debts, meaning that you can pay them off for less money without having to worry about lots of different bills. Like anything, though, consolidation loans have their advantages and their disadvantages, and it pays to take a careful look at what they offer before you commit yourself.

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The Interest Rate
You should always shop around to get the best interest rate you can if you opt for debt consolidation. This interest rate is almost as important as the one on your mortgage, but much harder to change after youve signed on the dotted line. Dont be fooled by any offers that give you a good rate for a limited time youre going to have this loan for quite a while.

That said, the chances are that any interest rate youre offered on a debt consolidation loan will be significantly lower than the interest rates youre currently paying on credit cards. If you have lots of cards at a high rate and youve had no luck transferring the balances, then debt consolidation could be a very good idea.

The Length of the Loan
The most dangerous thing about debt consolidation loans is that the ones with lower payments generally last a very long time you could be paying it off for twenty years, or even longer. You should try to find a loan that doesnt last as long, and asks for payments that are as much as you can afford. If you look at what your payments would be and think oh, how cheap!, the chances are youd be signing up to them for a long time to come.

Look Out for More Cards
One of the most dangerous things about getting a debt consolidation loan is that, since your credit cards have all been paid off, it can be tempting to accept the next few offers you get for new ones. After all, now youre saving all this money, you can afford a few more cards, cant you? Dont fall into this trap! Consolidating your debt and then running up more is an extremely bad idea.

You Could Lose Your Home
Of course, this is the absolute number one most dangerous thing about debt consolidation. Almost without exception, the loan will be secured on your home. That means that if you start missing payments, the finance company will kick you out, take (repossess) your house, sell it, and pay back the debt with that money.

Theres a whole industry around property developers buying repossessed houses and selling them on for a profit. The chances are that youll come out of it with nowhere near enough money left to buy even the smallest home, and nowhere to live. Just imagine that. If you do take a debt consolidation loan, you need to read the small print as if your life depended on it (it does), and then be very, very careful. Good luck.

About the Author
Ken Austin is the webmaster at Debt Consolidation Information and Credit Card Debt Relief