Why Loan Consolidation is Never a Good Idea

Debt Reduction Alternatives that Provide Financial Relief

Loan consolidation is an approach that lets borrowers take out a new loan with a low rate of interest to payoff high interest loans. Tightened lending criterion has made it difficult for many people to qualify for loans, so the first thing borrowers need to do is check their credit rating.

Although loan consolidation can seem like a good idea, it is necessary to figure out the real costs involved with taking out a new financial loan. This is exceptionally crucial when attaining a home equity loan that requires putting real estate up as collateral.

Any time real estate is used to secure bank financing it is put at risk for foreclosure. It can be extremely risky to use a house and take out a loan to pay off unsecured debts. If homeowners fall behind with home equity loan installments, the loan company can begin taking steps to repossess the real estate. It doesn’t matter if homeowners are current on their first mortgage payment.

Debt consolidation is often attractive to people struggling to make ends meet because it offers the promise of reduced monthly payments. In actuality, the only thing that is happening is payment terms are prolonged.

Although borrowers acquire reduced payments interest is assessed on the unpaid balance for a longer time period. Extending payment terms can potentially add hundreds of dollars in additional interest.

The fact of the matter is loan consolidation can be expensive. When debtors add time to pay off debts they are actually escalating their debt level and removing cash from their own pockets. In lieu of applying for consolidation loans consider spending time researching debt reduction alternatives.

Reliable resources for taking control of money are Suze Orman and Dave Ramsey. Both have written numerous books and offer home study courses via their websites. Another alternative is to enter into credit counseling.

Reputable credit counseling agencies offer a range of services to help people overcome debt problems. In some cases, counselors can help consumers negotiate with creditors and obtain reduced interest rates and removal of late fees and penalties.

At minimum, credit counselors can help consumers create a debt reduction plan and learn ways to reduce expenses through budgeting.

Budgeting is one of the most efficient ways to conquer debt troubles, yet does call for fiscal responsibility. One of the biggest mistakes people make is using credit cards for basic expenses than only paying minimum installments. This strategy is certain to keep people held captive to debt for eternity.

Achieving success with budgeting requires keeping tight reins on expenses and spending less than earned. When expenses exceed income it is imperative to find ways to decrease expenses or earn extra money. An easy way to find out where you stand is to make a list of household earnings and fixed expenses.

Most people can’t alter their mortgage or rent payment, but there are other areas where costs can be slashed. Consider signing up for utility budget plans to stabilize monthly payment amounts. Reduce cable or cell phone services to a basic package. Buy frequently consumed products in bulk or at the very least, use manufacturer coupons.

If you need additional money consider taking a part-time job or engage in bartering techniques to reduce household expenses. With a bit of creative thinking, people can usually find opportunities to decrease expenses or increase cash flow.

Instead of putting yourself further in debt with loan consolidation, develop a plan to tackle debt head-on. Work toward paying off loans with the largest balance first and then focus on smaller loans. Always strive to pay loan installments on time to prevent further credit damage.