The Risks of Consolidating Debt

Consolidating debt can make things easier on you when it is time to pay your bills every month. However, this strategy does have a few potential drawbacks. Here are some of the risks of consolidating debt.

Higher Interest

Sometimes, people will take higher interest rates on consolidation loans just so that they can consolidate. They like the convenience of having only one payment, and they go ahead and consolidate everything. If you are going to be paying a higher amount of interest, the consolidation is not a good idea.

Secured Loan

Another potential risk of consolidating debt is that you are going to use collateral to secure the loan. When you use collateral, you are going to be risking your personal property. For example, if you had credit card debt and you decided to take out a home-equity loan to consolidate all of your debt in one place, you would be risking your house for the debt that you accumulated on your credit cards. If you cannot repay the credit card debt, you are potentially going to lose your house over a few purchases that were made. This is not a good strategy and can be very risky. 

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