Dangers of debt consolidation

Debt consolidation is very popular today. But, most of us people now aware what exactly it is and the dangers of the same.

Below is a simple example for you to understand the real danger associated with debt consolidation.

In simple words, Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Through Debt consolidation, a person paying off multiple unsecured loan with a liability of having a single unsecured loan. Here is an example how this could be a worst problem for him in the future.

Suppose you have $30,000 in unsecured debt, including a 2-year loan for $10,000 at 12%, and a 4-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one.But the hidden trap of this is, you are now required to pay next 6 years to come out from debt. If you don’t fee this is not bad the, remember you will now have to pay $46,080 to pay off the new loan versus previous original $40,392, even with the lower interest rate of 9%. this give you additional burden to pay $5,688 more. Certainly it is not a good deal for any of us.This example shows you why they are in the business – because they make money off of you.

The best advise from my side is “Don’t try Debt Consolidation”

Below are some familiar advertisements using by debt consolidation companies to catch the victims.. beware of it.

“DEBT RELIEF IS JUST A CLICK AWAY!” “CUT YOUR MINIMUM MONTHLY PAYMENTS BY 50% OR MORE!” “SLASH YOUR INTEREST RATES DOWN TO ZERO!”

The only recommended method to come out of loan is:

1. Don’t take loans if possible.2. Control your habits of taking loans.3. Avoid using credit cards for unwanted purposes.4. Have a good budget to control expense.5. If you have debt, have a written plan to pay off the debt and strictly follow your plan till achieving your goal.