What are the downsides of debt consolidation?
Debt can be bothersome and tricky, so a lot of consumers attempt to fight fire with fire by consolidating debt, but if theyâ€™re not careful, this can turn into a dangerous cycle. There are several ways to consolidate debt. Solutions include debt-consolidation loans, balance transfers to a zero-percent credit card and home equity loans or lines of credit. Hereâ€™s what to watch out for.
According to Nolo.com, â€œAn unsecured debt consolidation loan may be hard to get if you donâ€™t have sterling credit. Most people who need debt consolidation loans may not qualify. Also, interest rates are generally higher than secured loans. This may result in a payment that is not low enough to make a difference in your financial situation,â€ and thatâ€™s even before you get a handle on reining in future spending.
- Although you may feel immediate financial relief after consolidating bills and debt, be careful not to lose focus on your actual financial situation. Sometimes, consumers get an unjustified and unrealistic sense of confidence when they feel like theyâ€™ve conquered their debt. Donâ€™t let this happen to you. Itâ€™s important to keep your eyes on the prize, which is to manage your debt down, until you are living within your means and paying off your debt as quickly as possible.
- Home equity lines of credit or home equity loans can be a way to consolidate your debt. This isnâ€™t for everyone, though, for the simple reason that it requires you to own a home with available equity (the difference between the current market value and your existing mortgage debt). com warns, though, â€œBy leveraging your residenceâ€™s value, the pitch goes, you can get money to pay off other bills and a tax break, too. But borrowing against your house can backfire. The biggest risk: You could lose your home if you default on the loan.â€ With that being said, this kind of debt consolidation method presents a heavy risk. Thatâ€™s why itâ€™s important to have a debt consolidation plan and move forward carefully and strategically.
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By taking out one of our personal loans, you can make affordable monthly payments and build your credit story by making on-time payments each month. As you continue to make your payments on-time, you build your credibility and your credit history. We offer decisions in minutes and funding as soon as the next business day to help make your debt – conquering dreams a reality. But whether you work with us or find another solution, we wish you the best in your journey toward financial health.
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