by Harriet Bond
(Ventura, California, USA)
Many people in the United States who have multiple credit cards at their limits look into debt consolidation as a way to help get out of this outstanding debt.
While this can be a good option for some, debt consolidation is not for everyone. It has its disadvantages, but without researching and learning about the subject, you may not realize what these downfalls are. Before you consolidate your debt, understand what you are getting yourself into.
Debt consolidation only works if you make informed decisions regarding your financial situation, and the only way to do this is to be a savvy consumer. Just because you’re in debt doesn’t mean you have to let debt rule your life!
Debt consolidation is attractive to many because it promises one monthly bill instead of many, and oftentimes this bill will have a lower interest rate. This is done by taking out one large loan and using it to pay off your credit card debts all at once.
Then you simply have to pay off the one larger loan. However, to do so, you usually have to put up some kind of collateral saying that you will pay back this loan. Most people use their home and take out ahome equity loan or line of credit.
This is great if you pay back the loan, but if you can’t pay it back, the lender can legally take your house and sell it for a profit. Remember that when you consolidate your debt, you could be risking your home!
While the interest rates may be lower on consolidated loans at the start, remember that this type of loan is also associated with a number of fees.
These fees can be very high, and if you don’t have the money to pay them up front, your interest rate will rise. Check your mortgage-your interest rate may be subject to rise anyway. In the long run, sometimes debt consolidation does not help you much financially.
Instead of consolidating your debt, work with a financial adviser to pay off your credit cards one at a time. You can also work to lower your interest rates by calling the companies.
For many people, this is a less expensive alternative to debt consolidation. Only you can decide what option is right for you, but do so quickly-your interest rates are rising and your debt is piling up every minute you wait!
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