Debt Consolidation Loans

What are Debt Consolidation Loans?

Are debt consolidation loans really the best choice for debt reduction?

Debt Consolidation loans do not reduce the amount you owe, it simply combines all of your debt and attaches a lower interest rate. All you are doing is exchanging one debt for another at a lower interest rate.

When applying for a debt consolidation loan you typically will be asked to secure the loan against some form of asset (collateral), usually a house or car. This transfers your unsecured debt to a secured loan, which puts your personal possessions at risk if you fail to make payments. These loans also extend the period of time it will take to get out of debt. A home equity loan can be spread out over 30 years!

The majority of people who apply for a debt consolidation loan find themselves digging into deeper debt. The majority of people who enter a debt consolidation loan program neglect to cancel their credit cards after they have been paid off so they tend to use them again and get right back into debt problems. Most of people who use debt consolidation loans will go over their credit card limits again which means that not only do they have to pay back the consolidation loan they have new credit card debts to worry about! Unfortunately those people have just doubled their debts.