Smack Debt Consolidation Services

If you are knee-deep in debt, a debt consolidation loan may at first appear to be a lifesaver. But applying for a debt consolidation loan without due diligence can be a serious mistake.

Ideally, here is how debt consolidation loan works - You have a few high interest credit card and store card accounts. You want to get rid of the balance. So you apply for a debt consolidation loan to lower your monthly payments. It may sound like a terrific solution. However, debt advisors recommend you think twice before going the debt consolidation route. Here are a few ways you can consolidation your debts and bills.

Low interest unsecured loan
Get a low interest unsecured loan from your bank or financial institution. This type of loan is ideal since the loan is not tied to your home or other hard assets.

Transfer your balances to new credit card:
Before you consider transferring your balanced to a new credit card, read the terms and conditions several times. Make sure the fees and interest rate do not get you into further trouble. If you are comfortable with the fine print, go ahead and apply for the credit card.

Home equity loan:
It may sound a great idea to get rid of all your debts by borrowing money against your home. However, if you are unable to pay your monthly dues, you could lose your home.

There is another danger of debt consolidation loans. It is also called as the doubling down effect. Most people who pay off all their credit card balances, get a sense of false accomplishment. They have not really paid off their debts but have simply transferred over their debts. They vow not to use their credit card accounts but they eventually do. This leads to misery especially if they get into credit card debt a second time around, they may not be eligible for a second debt consolidation loan. That would be financial disaster.

Most consumers who consolidate to a new credit card with zero balance enjoy the short term introductory rate but fail to pay off their debt during this period. Before you commit to a debt consolidation loan, ask yourself the following questions:

Is the total debt consolidation loan - principal and loan interest - less than the consideration combined for all debts it will pay off?

Are the terms of the new debt consolidation loan reasonable? If your new loan or credit card carries significant penalties, or if the origination fee runs into several hundred dollars, calculate for yourself if it is worth the cost.

Are you smart enough to close all the credit card accounts that got you into trouble in the first place?

By honestly answering the above questions, you can decide for yourself whether or not to go the debt consolidation way.

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