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While debt consolidation is being promoted with great vigor and its tempting to
consolidate many high interest balances into a more feasible package one needs to
take the final step with care. Often debt consolidation is not a solution to problems
and may provide a symptomatic relief.
One needs to come out of a debt trap intelligently and not dig deeper into the red. Very
often debt consolidation is known to multiply debts instead of easing them. What is more
there are high rates, hidden charges, and late payment clauses that would ultimately add
to your burden.
The dangers of debt consolidation are many:
1. Debt consolidation only provides temporary relief and not a permanent
solution. It does not cure the debtor from his overspending habits.
2. debt consolidation loans are often more expensive than an overdraft or
credit card loan as you are paying interest over a long term and may end up
paying more than you borrowed.There are in addition hidden fees, expensive
insurance, and other cloaked profit-boosters for lenders. Personal loans are
at say 14% interest while debt consolidation loans charge
between 18-21%.
3. Many once again run up debt as their old loans are consolidated to be
lower monthly payments. Available money can become a temptress and cause immense
problems. By adding to debt load a person can take the fast track to bankruptcy
courts.
4. Credit insurance ads to debt and is not actually helpful although
lenders promote insurance as a must. It can add owing sod USD 2000 to the balance
of a USD 5000 loan.
5. Many a time debt consolidation affects adversely the credit report and
score of a borrower. Normally there will be an immediate drop in points on
consolidating debt.
6. Since many debt consolidation loans are against property you may loose
your home should things go wrong for some reason.
7. While debt consolidation may provide immediate relief in the long run
you may just land up paying more to clear the debt via add ons and hidden charges.
When faced with debt it is best to seek the advice of professionals. They will
study your case and work out a plan which will enable you to get rid of debt
without any additional trouble. What is important is financial planning not
random choice.
Find out why debt has accrued. Weigh the pros and cons of debt and never choose debt
consolidation based on commercials. To rid yourself of debt you need to put an end to
spending before earning and lock up your credit cards. Tread the right part by educating
yourself on credit scores, credit report, debt, and lifestyle choices. Make intelligent
choices and you will live life free of debt.
About Author
Barry Allen is a freelance writer for
Consolidate Debt , the premier
website for free Debt Consolidation Services for loans, debt management plans, debt
counselors, advice, loan payments and many more.
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