Important Debt Consolidation Pitfalls You Should Be Aware Of
Debt Consolidation can be highly practical and cost-effective way to manage your debt.
What debt consolidation consists of is taking out one loan in order to pay off all other loans and debts you have scattered throughout with multiple lenders. Its key strength lies in the convenience of needing just one loan to offset all other loans.
But aside from the practical aspect of having only loan to worry about, making the whole operation much more easy to manage, there is another benefit usually associated with debt consolidation: lower interest rates.
Debt consolidation can be applied to a number of areas of your financial sphere, and is commonly applied to credit card debt. With a credit card, the typical APR will be in the range of .9; a loan to consolidate the debt will be generally offer a substantially lower interest rate.
So ease of management, and potential saving on interest make debt consolidation a very viable solution for individuals who are in debt.
However, a debt consolidation loan is not without any potential drawbacks, and may even be a solution that leaves you worse off than you were before. Let's look at how this can occur:
Firstly, a debt consolidation loan is still a loan. You are taking on a burden of repayment, with all that it entails. If are unable to maintain the payments, your credit can (and likely will) be negatively affected.
Secondly, some of the debt consolidation offers carry hidden risks which you may not be aware of at the time you avail of the offer. Such an example are the so-called, "Zero Interest Credit Cards". While these cards are certainly appealing, with the 0% interest rate, it's important to understand that:
1. The 0% does not last indefinitely. It may last up to six months on your balance transfer. After that, you're back to square one, and if you have a bad credit score, it is also unlikely that you will qualify for a 0% rate in the first place.
2. You can avail of the 0% (or preferential interest rate) only insofar as you don't miss any payments. Slip up, and it is probable that the card issuer will raise your interest rate to a much less competitive level, as well as negatively impact your credit score.
3. Many debt consolidation loans look at higher end debt levels, such as a minimum of $10,000 of debt, before they will be issued to you. Most times, in conjuction with the 0% rate for 6 months, it won't be enough time to settle your entire debt within the confines of that time frame, and at that interest rate.
However, even 6 months of 0% can be a big benefit, easing the burden on existing debts. You can save a substantial amount of money on interest rates. But do not be tempted to rely on such credit cards as a long-term solution: constantly requesting a new Zero Interest Credit Card can have an adverse effect on your credit score!
Another common form of debt consolidation consists in taking out what is know as a home equity loan.
A home equity loan will require you to use your property as a collateral in securing the loan; the amount can vary, but is usually always weighted agains the property's equity value.
The main advantage of a home equity loan debt consolidation loan, is that it's virtually guaranteed to be issued, given that a collateral is put up against the amount of the loan. Also, most home equity loans qualify for tax deductions on the loan interest, making it an even more appealing option for those individuals looking to consolidate their debt.
But as convenient as home equity loans are, they also pose a great risk: if you default on a loan payment, you can face a very real chance of losing your property. Before signing your property as a collateral, make absolutely sure you are able to keep up with the loan repayments!
A debt consolidation loan is something that should be given a tremendous amount of thought and consideration before jumping head-first into it. Always consult a financial professional or tax advisor before signing for a debt consolidation loan, as they are familiar with many more money-saving options the everyday consumer may not know.
With a debt consolidation specialist, you can get your debt down to an easily manageable level, with convenience and ease of mind.
Please visit Credit Deal for your free consultation with the best debt consolidation services, which have been awarded the highest ratings for debt relief companies by the Consumer watchdog and review site.
Joshua Harris is a free-lance writer, author, copywriter, and long-time online marketer.
A former military officer, Joshua pursued a rewarding management career in the hospitality, then retail industries. After clashing with the inflexible mentality of the corporate world, he went his own way, launching a series of successful entrepreneurial ventures in the hospitality and catering sector. He eventually sold all his profitable businesses, and turned to the Internet for what he calls "a multi-full time income, for a mini-part time effort
For more information on Debt Consolidation you can visit: Debt Consolidation Headquarters
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For more information on Debt Consolidation you can visit: Debt Consolidation Headquarters