Should I Get a Consolidation Loan?
If you’ve 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.
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 you’ve signed on the dotted line. Don’t
be fooled by any offers that give you a good rate
for a limited time – you’re going to
have this loan for quite a while.
That said, the chances are that any interest rate
you’re offered on a debt consolidation loan
will be significantly lower than the interest rates
you’re currently paying on credit cards. If
you have lots of cards at a high rate and you’ve
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 doesn’t 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 you’d 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 you’re saving all this money,
you can afford a few more cards, can’t you?
Don’t 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.
There’s a whole industry around property
developers buying repossessed houses and selling
them on for a profit. The chances are that you’ll
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.
Credit Card Resources
Unsecured Credit Cards for bad credit
Reward Credit Cards (good credit required)
Guaranteed Approval Pre-paid Credit Cards
Payday Loan Companies
Secured Credit Cards
About the Author
Liz Roberts is a loan consultant with NewHorizon
Finance and has been providing consumers
and business owners with financing since 1989.
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