When debt looms large and threatens to vanquish all that we have worked for a debt consolidation loan can throw us a lifeline. Consolidation loans reduce interest rates on unsecured debt such as credit cards and signature loans. Instead of a plethora of monthly payments that barely touch the principal, consolidation loans provide one payment that is significantly lower that the sum of all its parts. Often the first instinct is to grab onto the lifeline consolidation loans provide.
And they can be, but only if the borrower recognizes that this is an extreme measure. Debt consolidation treats the symptoms; it does nothing to cure the overall disease. The disease, for most people who seek relief from debt with a consolidation loan, is overspending. If debt consolidation is not accompanied by a complete change in spending habits, debt overload will return. And when it does, the options for relief dwindle.
Debt consolidation loans reduce the averaged interest rate a borrower pays but it also extends the debt over a longer period of time, typically from 10 to 20 years. So, the borrower may not, in fact, pay less interest for debt, but in reality pays more.
A common pitfall that is frequently ignored when borrowers seek relief with a debt consolidation loan is that what was once unsecured debt is now secured by your home. Now instead of one loan attached to your home, there are two. Two chances to default, to chances to lose your home. And when the real estate market falls, as it is currently doing, you could end up having more debt than equity. So if you plan or need to sell your home, you are in a pretty bad position.
Debt consolidation loans can be the lifeline that puts your family back on the firm ground of financial solvency. But, if it isn't also accompanied by a radical change in spending habits and financial counseling, it can become a deadly noose. Take the first step to curbing spending by cutting up those credit cards as soon as the loan as cleared the credit card debt. This first step is a handhold financial counselors recommend that the family cut up all but one credit card when the credit cards are cleared by the consolidation loan. on the lifeline that your reach firm ground. Debt consolidation loans can be your noose or your lifeline---you decide.
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