The Dangers of a Debt Consolidation Loan

The Dangers of a Debt Consolidation Loan

 

For many people a debt consolidation loan implies convenience - the convenience to pay one single bill instead of 20 or 30 odd bills in a month.

 

It also implies hassle-free consolidation of all existing liabilities under one umbrella.  What’s more, if the interest rate is supposedly lower than existing ones, what could be better than a debt consolidation loan? 

 

The fact is: Convenience alone is no guarantee that you will incur savings.

 

Most of the time a debt consolidation loan will promise you a lower interest rate than your current liabilities.  There is always a catch in the agreement of the debt consolidation loan.  To know if the interest rate is truly lower than current rates, be sure to check interest rates on each of your existing liabilities.  Then check this with the offered rate on the debt consolidation loan.  If it really is lower, the next thing you need to check is if this is a promotional rate or not.  Many banks will try to lure unsuspecting customers by offering a debt consolidation loan with a low interest rate.  This is usually a promotional rate and ceases after the promotional period ends.  Be sure to read the fine print of the agreement very carefully to check what the interest rate changes to after the promotional period.  Chances are the rate will be much higher than even normal rates!

 

Shop around, hunt for the best deals, and do your own research.  This way you will not only learn about promotional schemes on the debt consolidation loan but also find ways to negotiate and bargain your way through.  Credit unions often tend to provide more attractive rates than banks.

 

Also, be very careful about the secured versus unsecured debt consolidation loans and don't sign over your house when agreeing to a "secured" debt consolidation loan or else you may find yourself without a house some day.