Debt Consolidation Loans
Debt consolidation loans are taken out to secure a lower interest rate, a fixed interest rate, for servicing just one loan or a combination.
These loans are a two edged sword. They have some significant benefits, but equally significant drawbacks.
Taking control of your finances
Loans that consolidate debt help organize (and thus simplify) several individual bills into one.
Having a good understanding of where you are financially is a powerful weapon in taking charge and paying down your debts.
Although the benefits are significant, there are landmines to navigate around. In other words, be sure any consolidation loan helps reduce your debt, not lead to more. Let’s explore further.
Beware of Un-reputable Companies and Scams
There are many un-reputable companies and debt consolidation scams. Beware of high service fees, interest rates, money up front scams, insurance charges and more.
Minimize Debt Consolidation Loan Problems
To minimize problems with consolidation loans make sure:
• You are working with a highly reputable loan company.
• You have read the loan material thoroughly—and understand it.
• There aren’t hidden charges.
• Get a loan you can pay off early without any penalty charges.
Other Consolidation Loan Concerns
Consolidation loans can be a slippery slope for some people. They get a consolidation loan and the overall minimum payment is frequently less than the other loans that they consolidated.
With lower payments some people feel like they have more money (the wealth effect). They spend freely again on things they want (but don’t need). This puts them deeper into debt. Eventually a day of reckoning occurs—and it isn’t pretty. Some people end up in bankruptcy.
Once you have consolidated your loans continue on the path of financial responsibility. Make a commitment to stay on a
and pay much more each month than the minimum. In other words, tighten the financial belt, pay off debts early and sleep better at night.
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