Is Debt Consolidation Good Or Bad?
by
Gibran Selman
What is debt consolidation? Let us get it cleared first. In short, it is a plan or method to cluster all debts into one. If you have five debts of $20,000 each, you have a total debt amount of $100,000. Some of these debts may have higher interest rates than the rest, that is, some debts cost you more than the others. That is precisely where debt consolidation comes of use. Theoretically speaking, debt consolidation means that you?d take a loan to pay off the $100,000 at a fair, usually low, interest rate. Then you?d clear the five small debts using this loan fund. So actually you have just one monthly payment and one interest rate to care for and manage. Debts can be consolidated with debt consolidation loans, by opting for a home equity loan or by transferring the entire debt amount to zero or low interest credit cards. Home equity usage to settle debts, however, bears one risk?if you default on the new loan, it may result in losing the home altogether. Similarly, zero or low interest credit cards are no great future solutions?these hardly last because they are just made to look attractive. Debt consolidation loans are often quite helpful. But rest assured, you will not get low interest rates if you already have debt problems. So, in case you go for debt consolidation loans, do your calculations well. Try and realize whether that loan will really help reduce your total payments and the total interest you need to pay for the loan. Some credit and debt counselors, however, hold that any sort of debt consolidation is a bad decision. Unfortunately, it is a fact that an estimated 70% of Americans taking debt consolidation loans land up with equal or worse debt worries within a couple of years. In this light, it is better to consult a debt counselor for long-term debt solutions. The task of professional counselors is to negotiate with your creditors, making them agree to lower interest rates, and to guide you on effective debt management simultaneously. There is just one dark side to using counselors?your credit report gets slightly affected because, technically speaking, you are not paying your bills as per the original agreement. For more articles on Debt Consolidation go to: DebtConsolidationCenter.net Gibran Selman takes care of DebtConsolidationCenter.net a website dedicated to gather information, on and off the internet, about debt consolidation and other related subjects.
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