Why debt consolidation loans are bad
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Why debt consolidation loans are bad

The nation's debt numbers are the highest in years with no relief in sight. Understandably Americans are stammering to come up with a solution for the financial situations. Perhaps one of the most popular ways that are being sought for is a credit card consolidation loan. Consumers must realize what it is that they are actually doing. A consolidation loan is debt that they are taking on to pay off other debt that they have already accrued. One needs to ask themselves how this is getting them out of the current financial crisis. It is never a smart move to take on more debt to pay off old debt. The consumer needs to understand that although the initial terms of the loan contract may be attractive, but are subject to change at any given time and probably will.

When first entering into a debt consolidation loan one's mind is attracted to the initial proposals. This usually consists of a lower payment, a lower interest rate, or debt length. What the borrower needs to realize is that the current debt that they have was probably a very attractive offer in the beginning as well. The interests were low as well as the minimum payments. Whether or not one was late on a payment or other reasons the interests jumped as well as the minimum payments. One can bet that this is exactly what will happen when it comes to the debt consolidation loan they are taking out. Loan establishments are not there to help the borrowers they are there to help themselves. It is a business the need to make money and they will at the borrower's expense.

why debt consolidation loans are bad debts

If there is a positive to taking on a debt consolidation loan it would be paying off all debts and having just one debt. This is not really an accomplishment of any sort especially when the terms on the loans take a different direction. Debt consolidation loans are almost always secured loans as well. Chances are that the debt the borrower has now is not secured which means they are taking on secured debt for unsecured debt. Never a good idea and should never be an option. No one should ever tie up an unsecured debt to a secured debt this is a disaster waiting to happen. One puts themselves in serious jeopardy doing this..

The differences between secured debts and unsecured debts are very simple. Unsecured debt is debt that is not tied to any property or assets. Unsecured debt is usually credit cards, personal loans, medical debts or lines of credit. Having secured debt is when the debt has been secured by some type of property such as one's home or land. If at any time the borrower defaults on the loan the lender can seize the property for payment. This is a type of loan that should be avoided at any costs. It is important to know exactly what it is that you are doing before making any type of permanent financial decision.

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