Ideally, debt consolidation is a debt relief solution where you combine all you debts into one and repay it with a lower interest-rate consolidation loan or balance transfer to a zero-percent credit card or lines of credit so that you pay less in total payment while ease you in managing your debt repayment. But, thing does not work perfectly all the time, based on some survey's results, 70 percent of Americans who consolidate their multiple debts into a consolidation loan will end up with the same (if not higher) debt load within 2 years. What makes it happen? Debt consolidation should be a solution for debt relief, but why turns out differently that increases your debt load?
Here are potential problems of debt consolidation:
1. Debt Consolidation Seems To Cure Your Debt Issue
Once you consolidate your multiple debts into a new consolidation loan, it seems that you have paid off your debts. The new loan could be a fresh start which does not incur debt pressure on you. You feel relief after debt consolidation until you forget that your debt is actually not cleared but only being transferred to a new loan. With a relief, you may lose control on your spending and causes more debts that worsen your debt situation than before the debt consolidation.
2. Your Credit Cards Are Free To Use Again
With a debt consolidation, all your credit card debts will be paid off with the consolidation loan, making them back to the maximum limit for you to use. If you carry those credit cards when you go for shopping, chances that you may charge it again due to impulse buying behaviors and add new debt before you pay off your consolidation loan.
3. You May Consolidated To A High Interest Rate Loan
Many consolidation loans have a very low interest rate to attract consumers to sign up with the loan, but in actual fact, their interest rate may be higher than your current interest rate after the ending of promotion period such as 3 or 6 months. You may get trapped and make your debt worsen if you don't read the terms and conditions of debt consolidation plan carefully before sign up with the plan.
4. Debt Consolidation Against Your House Can Backfire
Home equity lines or loans often are touted as easy and quick way to get out of debt. But, borrowing against your home can backfire because you could lose it if you default the loan. You may face financial hardships along the loan repayment period that cause you have difficulties to repay the loan and may default it finally. If the loan is secured with your home, you could lose it.
Summary
Debt consolidation should be a way to help you relief your debt problem, but it may turns out to be in opposite direction to worsen your debt if it is not done wisely.
Cornie Herring is the Author from http://www.studykiosk.com/CreditBasics. Find more information & tips on debt relief solutions which will help you to identify a debt free option that best fit your financial situation.
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