Debt Consolidation Tips: Loans to Avoid

If you are looking for good debt consolidation tips there is a chance that your debt situation has gone out of control. If you are considering taking out a debt consolidation loan, there are a few things that you will want to keep in mind. One common problem that people run into is consolidating their debts into a loan when they do not need to. Unnecessary consolidation can actually compound your debt problems in a number of ways. Here are some things to consider before signing up for any loans. 

Unnecessary Consolidation

Many people have four or five credit cards with balances on them. They make the monthly payments every month and have not currently had any problems with repayment. However, they are constantly bombarded with debt consolidation commercials and mail offers and begin to think that it could help them. Even though they can afford their payments, they would still like to get out of debt quickly and they contact a company that talks them into consolidating. You should be careful because the interest rate of the loan is usually higher than the previous credit.

When you agree to paying a higher interest rate, it will hurt you in a number of ways. The debt will now cost you quite a bit more than it would have otherwise. Your payment will also be higher each month than all of your other payments were combined. Therefore, consolidating just so that you can have all of your debt in one place, is not necessarily going to help you. 

Unsecured Loans

Many debt consolidation products are unsecured loans. This means that there is no collateral securing the loan amount. While this might sound like a good idea, it may actually end up hurting you. One of the best options for debt consolidation is a home equity product. This type of product allows you to get the money at a low rate and you can deduct the interest that you pay from your taxes. With an unsecured loan, you get neither of these benefits. If you are already in trouble with debt, getting a nice discount on your taxes can be extremely helpful. It could result in getting a big tax refund which will help you pay off the debt faster. 

Unsecured loans also have a much higher interest rate than one that is backed by collateral. Therefore, if you have something to offer, such as the equity in your home, it will usually be to your advantage to use it for consolidation. Otherwise, you might end up making it harder on yourself to repay the debt. You could spend more money each month and not get any help with your taxes. 

Questionable Lenders

There are many debt consolidation scams out there that you will need to look out for. They send out offers for debt consolidation loans, however, they are not legitimate. Before you go with any loan, you need to thoroughly check out the company that is offering you the loan. 

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