Debt Consolidation

Some of the downsides to debt consolidation are as follows:

• Debt Consolidation loans transfer the debt from one account to another and typically takes unsecured debts and changes it into secured debt (usually your home). If you do not have enough equity (typically 25 - 30% LTV), which is very likely in today’s real estate market you will not be approved for a debt consolidation loan..

• Statistics show that about 70% of people who obtain a debt consolidation loan find themselves in deeper debt than they were originally in within a two year period. You cannot borrow your way out of debt. Ask yourself why you would want to go from an unsecured loan to a secured loan to be paid over a longer period of time?

• The problem with consolidation loans is that once you have paid off the credit cards you have a whole new source of spending: $0 Balances on your credit cards. Many people lack the discipline to not incur any more credit card debt, leaving them in a worse financial situation. You not only have to pay back the cards but also the consolidation loan.

• If you start missing payments on the consolidation loan, you stand to lose your home that the loan is secured against.