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Downside of Debt Consolidation

If you are having problems keeping up with your debts and credit payments, or facing the possibility of recovery action on late installments, then the concept of debt consolidation can be extraordinarily seductive.

There is not any doubt you may have heard lots about debt consolidation arrangements - our TV screens are full of advertisements promising liberty from money worry, and the Net is positively flooded with solicitations to fasten in a low rate with a refinancing package. If you are having problems keeping up with your debts and credit payments, or even facing the chance of recovery action on late payments, then the concept of debt consolidation can be extraordinarily seductive.

By mixing all of your current liabilities into one single loan, the theory goes, you will be benefitting from both a decrease in your monthly repayment amount and a lifting of the strain due to consistently having to juggle your financials. But is debt consolidation actually as easy as all that? Naturally there are advantages to restructuring your finance life in this way, and the advertisements are not shy of indicating the positive side, but before starting on this plan of action there are some negative aspects you'd be sensible to think about.

Only then can you're making a well informed call as to whether debt consolidation is good for you. Most consolidation packages depend on a mix of both, but it is virtually certain the deal will involve a lengthy loan duration. This indicates that you will be paying interest on your debt for longer, and the full amount of interest you will be charged will in the longer term be higher.

You'll feel this is a price worth paying for reducing your regular debts to a more manageable level, and you will indeed feel you have small other choice, but it is a point to bear in mind. Another potential difficulty with consolidation is that, in a way, you are giving yourself a new start financially.

You are wiping out all those troubling debts and getting your financials back in hand. If you are not very careful, you might finish up in a far worse situation - having to repay a giant loan while running up new obligations at the same time. This problem can naturally be evaded by cancelling your card accounts at the same time as you clear the balances, and it is strongly advisable that you do this. The final problem to keep in mind is that by consolidating you may likely be shifting unsecured debt into a secured loan using your house as security. This indicates that if, in the future, you fall behind with your payments, you might risk losing your house as your creditor calls in the debt through foreclosure. This is a serious downside, and if almost all of your present debt is unsecured then you may would like to explore every other chance before tying it to your house. It could be an awfully effective plan for working with problem liabilities, but it should not be entered into blindly, irrespective of how engaging the ads may appear.

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