Debt consolidation loans – A cure to your credit issues or just a continuation?

This is a guest post by Donna Nell.

If your revolving credit card debt is keeping you awake at night, you must be thinking of combining them into a debt consolidation loan. Consolidating all your debts into a convenient monthly payment may seem to be the most organized and cost-effective debt relief programs option, but taking the plunge without considering the risks may become a foolish decision. Utilizing a debt consolidation loan may alleviate some of your financial anguish but if you’re not in the right financial state, this may leave you at a worse state. As the interest rates on the consumer loans have remained low since the credit downgrade, this has tempted most consumers to take on additional debt to ease off their fiscal contingencies. The goal of most debtors is to combine all high-interest bills into one less-costly package. But you should remain watchful about what looks to be a quick fix to your credit woes.

 

Do debt consolidation loans provide a symptomatic relief?

Yes, an eminent person of a non-profit credit counseling agency feels that most debtors get a symptomatic relief from their financial problems through a debt consolidation loan. It is more like adopting a fighting-fire-with-fire approach to reduce your credit card debts. This can take several forms like balance transfers, unsecured debt consolidation loans, secured debt consolidation loans (home equity loans) and even through home equity lines of credit. Though it makes sense to get out of debt when you have a plan, yet you shouldn’t breathe a sigh of relief and get back to the same situation that lead to debt. This is the reason why the financial experts feel that debt consolidation loans need to be approached with extreme caution if the debtor wants to stay on the safe side.

 

Betting the house for paying off credit card debt – Are you aware of the risks?

All those who don’t have stellar credit rating and are turned down while taking out unsecured debt consolidation loans turn to bet their house. They tap their home equity to consolidate debts and this is perhaps the most dangerous form of debt consolidation. While it may sound as an extremely simple process, the potential risk is of an impending foreclosure. For most people in America, their home is their biggest asset and putting that on risk may not always make sense. However, if you’ve saved enough money and you’re sure about your ability to make timely payments, you may take out such a loan to reap the benefits of tax breaks, low rates and an extended repayment term.

 

Balance transfer credit card – Did you check the fees and the introductory period?

When you feel that you’ll consolidate your debt on your own, you may also transfer your entire high interest balance to a low interest rate card. However, you have to qualify for that 0% rate on the card and also make it last forever. You should check the introductory period, the interest rate and the rate hikes that you may be subject to soon after the introductory period ends. Only when you feel that you’ll be able to save a considerable amount of money online, you should take the plunge.

The debtors who opt for debt consolidation loans aim to manage debt and not add on further debt. Before you take out any form of consolidation loan, you have to ensure that the interest rates are so low that it can translate into higher savings. Also make sure that you don’t extend your loan term so much that you end up paying an amount that is more than what you actually owed.

About the author
Donna Nell is a financial expert associated with a few financial communities. She also holds honorary posts in some websites as a financial advisor where she advises on debt management, debt relief programs , debt consolidation, credit counseling and taxes.