Should You Do Debt Consolidation?
Are you over your head with credit card debt, car loans, or student loan payments? If so, you’re probably feeling overwhelmed and helpless and maybe even considering debt consolidation. Primary Residential Mortgage understands the struggle. Debt consolidations probably sounds like a simple solution because it’s one easy payment with the likely promise of lower interest rates. If you’re wondering if you should do debt consolidation, keep reading. The answer may surprise you.
Why You Should Avoid Debt Consolidation
The truth is debt consolidation loans rarely if ever, solves your debt crisis. You typically end up paying more and staying in debt longer when you do debt consolidation. Be careful always to get the facts before you consolidate your debt or work with a debt settlement company.
Things You Should Know About Debt Consolidation
These are the top things to consider before you consolidate your debt:
- Debt consolidation is a refinance loan with extended repayment terms.
- Extended repayment terms mean you’ll be in debt for a more extended amount of time.
- A lower interest rate is rarely guaranteed when you consolidate debt.
- Debt consolidation doesn’t mean debt elimination.
- Debt consolidation is different from debt settlement, and both can cost you thousands of dollars.
- Debt consolidation combines several unsecured debts, such as payday loans, credit cards, medical bills, into one monthly bill with the appeal of a lower interest rate, lower monthly payment, and simplified debt-relief plan.
- Debt consolidation generally over promises and under delivers, which is why debt relief companies continue to rank as the top consumer complaint received by the Federal Trade Commission.
Why is Debt Consolidation a Bad Idea?
There are lots of reasons that debt consolidation is a bad idea, such as:
- When you consolidate, there’s no guarantee your interest rate will be lower. The lender or creditor usually sets the interest rate of the debt consolidation loan. It depends mainly on your past payment behavior and credit score.
- Even if you qualify for a loan with low interest, it’s usually not a fixed rate, so there’s no guarantee the rate will stay low.
- The enticingly low-interest rate is usually an introductory promotional rate. It applies for a certain period only.
- Consolidating your bills means that you’ll be in debt much longer.
- Extended loan terms mean extended payments.
When you do debt consolidation, you are only restructuring your debt, not eliminating it. You don’t need debt rearrangement; you need to change your spending habits and come up with a plan to get out of debt sooner. Most of the time, when someone consolidates their debt, the debt grows back because they don’t have a game plan to pay cash and spend less. If you need help budgeting, give Primary Residential Mortgage a call. We are always happy to help. Call us today!
Note: Opinions expressed are solely my own and do not express the views of my employer