Loan consolidation could help you reduce your monthly payments and pay down debt more quickly. But when debt consolidation becomes something that masks the underlying issue instead of fixing it, you could make things worse. All lenders usually promise lower monthly payments, lower interest rates and the convenience of a single payment. For many, however, the reality is high fees, greater debt and potentially more interest payments. So, a loan consolidation option may also drown your finances.
If the ultimate goal is to climb out of debt, consolidation loans don’t have a good track record. Estimates suggest that at least seventy percent of those who consolidate their debt end up with as much or more debt a few years later. This isn’t to say that loan consolidation is bad. Consolidation loans can be useful tools for managing and paying off. However, they’ll only work over the long term if you can be financially disciplined enough to change your lifestyle so that you don’t go into debt again.
Loan consolidation services, in truth, don’t do much that you can’t do yourself. And they’ll often require hefty fees for their services: either in interest, in up-front fees or in monthly fees when you run your payments through them. Sometimes, such services are a good idea, but not if they’re going to cost you more money in the long run. You’re probably better off looking into loan consolidation options on your own. You could move your high-interest credit card debts to a no or low interest option, take out a home equity loan or possibly get an unsecured line of credit. If you are considering using a debt consolidation company, try to work out your debt problem in other ways before opting for a potentially expensive loan.