1. Consolidating Could Keep You In Debt Longer Than You Expect
It's true that most debt consolidation programs offer lower interest rates, which can lower your payments and ease up much of the pressure on your monthly budget. However, this benefit usually comes at a cost. With the lower interest rates and lower monthly payments, you will probably have a longer repayment period, meaning that you will be indebted to the lender for a much longer period of time.
2. You're Going to Have To Surrender Your Credit Cards
When you enter into a debt consolidation program, you will most likely have to surrender your precious plastic. However, that doesn't mean that you will have to go entirely without. You can obtain a secured credit card that can come in quite handy if you're ever in need of an emergency influx of cash. They work just like a regular credit card except that the loan amount is secured with cash on deposit in one of your bank accounts.
3. Debt Consolidation Loans Are Not For Everyone
Ideally, these loans work best with people who are already in a position to make at least the minimum monthly payment set by the lender. If you know that your income will be adequate enough to cover this payment, then by all means, proceed with the program. However, if you are not sure you can meet that one requirement, then you would be better off seeking other alternatives to debt consolidation that are available. There are many debt relief programs you have at your disposal, each offering a wide range of options.
4. For Some Bankruptcy May Be A Better Option
Yes, debt consolidation would be the preferred choice, but if you have any doubts about your ability to meet that minimum monthly payment, then bankruptcy may be your best option. True, it's an ugly road to travel and it will take years to rebuild your reputation, but if you enter into a debt consolidation program without the ability to pay then you'll probably end up there anyway, Better to play the “B” card than to stretch out your indebtedness for longer than it should be.
5. Think Twice About Home Equity
You've probably already learned that getting into debt is far easier than getting out of it. Many debt consolidation loans will encourage you to secure your loan with a home equity line of credit, meaning that you're using the equity in your house to secure the loan. Slow down a bit before you agree to this. It carries a huge risk and if you find you can no longer meet payments, your home could be lost.
6. Program Vs. Loan
Don't be fooled. A debt consolidation program is not a loan. A debt consolidation program does not ever involve borrowing funds from a lender like a bank, credit union, or a financial institution. You will be sending your money to a credit counseling service who will manage your bills for you. If you are consistent in making payments to them, then your creditors will be paid off in full without any of the hassles.
7. Be Aware Of The Cost of Credit
Credit can be expensive, so shop for lower interest rates. Lenders may offer lower rates to get you in the door but many will raise them after only a few short months. Even a small percentage point rise could push your budget beyond its limits. Whether you are looking at a debt consolidation loan or program, any discussion about interest rates should be clearly understood before you agree to anything.