One of the more popular ideas for getting out of debt being offered to people with struggling finances is something called a debt consolidation loan. But what is this loan and how does it work? Can it really help you get your finances back on the straight and narrow? Debt consolidation loans essentially consolidate all of your debts into one lump sum, which is then repaid with a single monthly repayment to just one lender. Sounds more manageable right? Well in theory, yes. It may be more manageable from the point of view of having less paperwork and less creditors to deal with, but one has to remember the downsides as well - with this kind of loan, there's always a catch!
For those who are having trouble paying off their debts, a debt consolidation loan probably isn't a very good idea. There are three big risks facing anyone who opts for a debt consolidation loan:
* Paying more overall
* Getting even deeper into debt
* Losing their home or car
Quite simply, when you apply for a debt consolidation loan to pay off unsecured debts, you will automatically free up new lines of credit, like your old overdrafts and credit cards. This means that the temptation is there once again to start using them, meaning you could end up in an even worse financial position than you were in before you rolled all your debts into one. For those who can't resist the temptation of spending what they don't have, debt consolidation loans are best avoided.
Debt consolidation loans are usually taken out over a longer period of time. Usually, people take out this kind of loan not just to consolidate their payments into one, but also to reduce their monthly outgoings. As such, the duration of the loan will be longer than what your current debts are - this means that you'll be paying interest for much longer as well, and so ultimately the amount you pay off is going to be much more
Debt consolidation loans don't come for free. The lender is going to want some kind of security on your loan, such as your home or your car. If, for any reason, you fail to keep up with your payments, you'll find that the lender is much less sympathetic to your plight than your original creditors were - they'll demand payment, and if they don't get it, they'll demand whatever the loan is secured on instead. At the end of the day, we have to remember that debt consolidation loan companies aren't the knights in shining armour they claim to be. They're in this to make money, your money, and that's why they want to "help" you in paying off your debts.
Luckily for you, there is an alternative to the risky practice of debt consolidation loans. The solution begins with signing up for a free debt consultation with one of our experts, where we'll even offer you a free credit check so you can get an overall picture of your financial situation. Our experts are on hand 24 hours a day, sitting by the phone, ready to take your information and help you get yourself out of a financial mess. Sign up for a free credit consultation today and see how we can help you get out of debt, without having to borrow anymore! Contact us today and get your finances back on track!