We’ve all heard the ads on the radio – debt consolidation promises to ease the burden of debt and help you pay it off faster! While this seems like this would be the magic bullet to solve all of your problems, we’re here to give you the lowdown on debt consolidation business and tell you why it’s probably not quite as good of a deal as you might have been lead to believe.
The idea behind debt consolidation is to lower your interest payments so that you can pay off the principal faster. This happens by having a third-party company negotiate with your creditors so that you pay lower interest on one mega loan rather than chasing down all of the smaller payments you have currently. The first question that comes along with this is: are you disciplined enough to do this? Many people use that extra money they get out of debt consolidation to go right back into more debt. Not a good idea.
Keep in mind that it might end up taking you longer to pay off your debt if you go with debt consolidation, particularly if you don’t use those net monthly savings you get from consolidation to pay off the principle of your debt.
Be sure you know if the one payment “consolidated” loan is right for you. In certain cases, it may actually be more beneficial to pay off smaller loans separately rather than roll them all into one consolidated mass. You won’t have that ability if you’ve already lumped them all together.
Do you need loans? Many times, people that go with debt consolidation services are unable to apply for extra loans after they consolidate their debt, and the loans that they are able to get are at a much higher interest rate.
Finally, keep in mind that not all debt consolidation loan companies are the good guys. Several customers have been swindled by debt consolidation companies, leaving them in even more dire straits than they were before they decided to go for debt consolidation. Obviously, not all debt consolidation services are out to get you, but be aware that bad apples exist in the bunch.
With all of this in mind, you may want to reconsider going for a debt consolidation service to compile your loans. Often, you might be surprised by how much progress you might be able to make by contacting your creditors yourself and seeing if you can come in, in order to make an arrangement on payment plans or other options. Best of all, it’s free!