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Why Consolidation Loans Are a Risky Solution to Debt
Are you drowning in debt? If so, there are a number of resources available. But while certain options like debt consolidation loans may sound like a good idea, they’re often a risky plan for solving debt. In fact, some consolidation loans could turn out to be bigger problems in disguise.
The language of finance can be difficult to understand, especially if you’re approaching it from beneath a mountain of debt. Thankfully, state certified institutions like CreditGuard of America are here to help you navigate today’s treacherous economic conditions.
How Debt Consolidation Loans Work
Because debt consolidation is a term that is thrown around a lot, it’s important to know what exactly a debt consolidation loan does. Consolidation loans combine your multiple debts into a single loan, resulting in a reduced monthly payment payable to one lender with a lower interest rate. While you lose a bunch of small debts, you gain a single big one in its place. Such loans can be obtained from financial institutions such as banks, credit unions, credit card companies, and private consolidation companies. These institutions work with your creditors to agree on a reduced sum and settle your account with one large payment.
The Disadvantages of Consolidation Loans
When you have a low income and/or a low credit score, there are a few possible disadvantages to debt consolidation loans. Consolidation loans often require credit checks and leave you subject to an array of criteria in order to qualify. And if you can manage to qualify at all, you will probably end up with a higher interest rate which might result in a higher cost than the total of your original loans. You might need to use your home, car, or other assets as collateral in order to qualify. In this case, you risk losing them outright if you should happen to default on the loan.
Yet the ultimate risk you take when relying on a consolidation loan to clear your financial slate is the often inevitable rebound into more debts down the road. Whether you decide to use a debt consolidation loan or debt consolidation to help stabilize your finances, it is best to accompany these options with a credit counseling program so that you can learn to save money and make long-term changes to your spending habits.
Making the Right Decision
Debt consolidation is usually the better option for low income consumers with lower credit ratings. This is not a loan, but a program offered by nonprofit credit counseling organizations like CreditGuard of America. After a free consultation to determine the state of your finances, a certified credit counselor will be assigned to your case. He or she will contact all your creditors and personally negotiate with them on your behalf. If possible, the goal is to bring your accounts current, reduce or eliminate your interest, and discontinue penalty fees. This can lower your monthly payments by up to 50%.
Your credit counselor will work with you to figure out one affordable sum to cover all your bills each month. You are expected to pay the monthly total to the credit counseling organization so they can forward the money to your creditors. With your accounts up to current, your credit rating will stabilize and the onslaught of phone calls from unsatisfied creditors will stop. You still have to pay off the debts. However, you don’t have to qualify for any new loans and everything is more manageable with a certified credit counselor on your side.
Choose Wisely. Choose CreditGuard of America
Perhaps the most valuable resource to be gained from credit counseling organizations like CreditGuard of America is the credit counseling itself. CreditGuard of America’s certified credit counselors make themselves available to answer all your questions about the ways of the financial world. They can help you understand more about the differences between consolidation loans and debt consolidation, and they can also help you decide which path is right for you. Credit counseling programs give you access to the facts and education you need to prevent future debt crises. When you know how to save money and understand how credit works, you can confidently navigate your finances with a greater sense of confidence and purpose. So why wait? Contact CreditGuard today for a free consultation with one of our certified credit counselors.
Contact us online or Call CreditGuard of America at 1-800-500-6489 for more information on our non-profit credit counseling and debt counseling agency. Certified Credit Counselors are available Monday through Friday 8:00 a.m. to 8:30 p.m.; Saturday 10:00 a.m. to 6:00 p.m. Eastern Time.
You can also use the Credit Card Debt Analyzer below to calculate the estimated interest and payment savings available to you through our debt management program.