Debt Consolidation - Assistance In Debt Relief Or Worsen It?

Rate of interests haven't been this low ever, tempting some consumers to take the advantage to consolidate their high rate of interest debts with a consolidation loan to save in interest while ease their debt management. Debt consolidation with a low rate of interest loan seems to quick fix your debt problem, but it might worsen your debt situation. Why?

Ideally, debt consolidation is a debt relief solution where you combine all you debts into one and repay it with a lower interest-rate consolidation loan or balance transfer to a zero-percent credit card or lines of credit so that you pay less in total payment while ease you in managing your debt repayment. But, thing does not work perfectly all the time, based on some survey's results, 70 percent of Americans who consolidate their multiple debts into a consolidation loan would end up with the same (if not higher) debt load within 2 years. What makes it happen? Debt consolidation should be a solution for debt relief, but why turns out differently that increases your debt load?

Here are potential problems of debt consolidation:

1. Debt Consolidation Seems To Cure Your Debt Issue

Once you consolidate your multiple debts into a new consolidation loan, it seems that you have paid off your debts. The new loan could be a fresh start which does not incur debt pressure on you. You feel relief after debt consolidation until you forget that your debt is actually not cleared but only being transferred to a new loan. With a relief, you may lose control on your spending and causes more debts that worsen your debt situation than before the debt consolidation.

2. Your Credit Cards Are Free To Use Again

With a debt consolidation, all your credit card debts would be paid off with the consolidation loan, making them back to the maximum limit for you to use. If you carry those credit cards when you go for shopping, chances that you may charge it again due to impulse buying behaviors and add new debt before you pay off your consolidation loan.

3. You May Consolidated To A High rate of interest Loan

Many consolidation loans have a really low rate of interest to attract consumers to sign up with the loan, but in actual fact, their rate of interest might be higher than your current rate of interest after the ending of promotion period like 3 or 6 months. You may acquire trapped and make your debt worsen if you do not read the terms and conditions of debt consolidation plan carefully before sign up with the plan.

4. Debt Consolidation Against Your House could Backfire

Home equity lines or loans frequently are touted as easy and quick way to acquire out of debt. But, borrowing against your home could backfire because you could lose it if you default the loan. You may face financial hardships along the loan repayment period that cause you have difficulties to repay the loan and may default it finally. If the loan is secured with your home, you could lose it.

Summary

Debt consolidation should be a way to assist you relief your debt problem, but it may turns out to be in opposite direction to worsen your debt if it is not done wisely.