Debt Consolidation

Unfortunately, a Debt Consolidation Loan is one of the most common solutions people think of when they fall into financial difficulties. This is a problem because most people who get a debt consolidation loan find themselves in much deeper financial trouble than they were in to begin with.

Debt consolidation loans transfer debt from one place to another. While this may sound good, since many times it can appear to lower your monthly payments, a debt consolidation loan will not reduce the amount you owe.

You will still pay back 100% of the debt consolidation loan, plus interest. The interest rate is sometimes lower than before, but this is because debt consolidation loans are usually secured loans that cannot be lowered or negotiated. Once you sign up for a debt consolidation loan, you have just gone from an unsecured debt to a secured debt and have put your personal assets (e.g. your car or home) at risk. At that point if you can't pay your bills your creditors can come and take your personal property - thus creating a bigger problem than you had to begin with.

Debt consolidation is right for some people, especially those that are not at risk of falling behind on their new consolidation loan and who have the discipline not to charge back up the credit cards that now have empty balances and available credit. However, if you are struggling to make your payments, you should consider debt reduction, not debt consolidation. This way you are dealing directly with the problem, not temporarily avoiding debt problems.