Use Caution When Entering Into Debt-Consolidation Loan

To the person drowning in debt, a debt-consolidation loan looks a lot like a lifesaver. But agreeing to such a loan without understanding it completely could be a serious mistake.

Here's the way it's supposed to work: You pay off all your small, high-interest consumer debts with the proceeds of a new, low-interest loan that has a lower payment than the total of the smaller payments. In theory, consolidation is a terrific solution for a burdensome debt situation. In reality, it can force you into even more treacherous waters.

Basically, there are three ways to consolidate:

* A new, low-interest signature (unsecured) loan from an individual, bank or credit union. If you can get it, this type of debt consolidation is ideal.

* Transferring all of the balances to a new credit card. Beware of excessive transfer fees or other troublesome conditions buried in the fine print.

* A home-equity loan. It sounds great to pay off your high-interest debts with money borrowed against your home's equity. But this only increases the stakes. Now if you fall behind, the lender takes your home through foreclosure.

There is one more significant danger that all of these types of consolidation loans have in common. I call it the "doubling effect." If you've ever lost 10 pounds and gained back 20, you'll understand right away. Most people who pay off all their pesky credit card balances look at those zero balances with a sense of personal accomplishment. They've done something remarkable. They didn't really repay their debts, but they enjoy pretending. They say they won't use those accounts again, but they fail to close them.

Statistics indicate that the person who consolidates to a new loan will enjoy the zero balances for a short time, but will eventually charge them back to all-time highs. The average time is two years. That means double the trouble because of the debt-consolidation loan. Before proceeding with any type of debt-consolidation loan, make sure you get honest answers to these hard questions:

* Is the total consideration -- not just the monthly payment -- of the debt-consolidation loan (principal and interest) less than the consideration combined for all the debts it will pay off?

* Are the terms reasonable? If, for example, the new loan or credit card carries significant penalties (you lose the attractive interest rate if you are late with one or two payments), that is not reasonable. If you must pay a big loan origination fee, that is not reasonable.

* Am I mature enough to cancel the accounts that will be paid off in the consolidation process?

Except in extreme cases, the best way to face a load of unsecured consumer debt is to stop adding to it, develop your Rapid Debt-Repayment Plan (you can see a demonstration of how this works at http://www.cheapskatemonthly.com), then buckle down and get to work!

Marc Sylvester is expect based in Edison, NJ . He holds expertise in the banking and finance sector and is a conultant to leading business houses.

You'll be amazed at how quickly you can reverse your debt situation once you know exactly when you will be debt-free. Mary Hunt is the creator of The Cheapskate Monthly newsletter. You can e-mail questions or tips at cheapskateunitedmedia.com or Everyday Cheapskate, P.O. Box 2135 Paramount, Calif., 90723.

http://www.imdollar.com/debt-consolidation-lo an/

http://www.imdollar.com

---

Credit Counseling ? Get in Line Now to Avoid the Upcoming Rush

Credit counseling is a valuable service for consumers who have... Read More

Debt Consolidation Loans: Thousands Now Out Of Debt, Who Never Thought They Would Be!

A Debt consolidation loan: Is a personal loan you use... Read More

Perks and Pitfalls of Debt Consolidation

Whether you want to pursue debt consolidation in order to... Read More

Planning To Become Debt Free With A Consolidation Loan

If you have multiple debts, and are struggling to meet... Read More

Debt Management - Debt Management Fees

Debt management fees can vary vastly from one company to... Read More

Does Working With a Credit Counseling Organization Hurt Your Credit Score?

Credit counseling organizations do not lower your credit score when... Read More

Benefits of a Debt Consolidation Loan

There are many benefits in choosing a Debt Consolidation Loan,... Read More

Choosing the Right Credit Counseling Agency for You ? Some Tips

Credit counseling companies come in all shapes and sizes. Whether... Read More

Money Problems?

You're not alone. Many people face a financial crisis some... Read More

Debt Consolidation ? Be Careful When Trading in Your Car

The automobile has long been recognized as the classic American... Read More

Debt Consolidation: Its all in the Planning

If you're like thousands of other people who find themselves... Read More

Debt Management - How a Debt Consolidator Can Reduce Your Debt

A Debt consolidation program starts with evaluating your financial situation.... Read More

Debt Consolidation ? Options for Reducing Your Debt

Studies show that Americans are now saving less than ever... Read More

What You Need to Know About Debt Consolidation

Debt consolidation is often a last resort for people who... Read More

7 Ways to Consolidate Your Debt

If you are in debt, you have several options available... Read More

Credit Card Blues

For the average American family, debt, and especially credit card... Read More

Get Out of Debt

It is said that a pet tiger cub can become... Read More

Are You Buried In Debt?

Are you having a problem paying your bills? Are you... Read More

Debt Consolidation Makes Sense Only with Low Interest Rates

Credit that cannot be managed or is not being repaid... Read More

Before Considering Debt Consolidation

If you believe in the good in people then you... Read More

Debt Consolidation ? Consolidate Your Student Loans Now!

The Federal student loan program has benefited thousands of college... Read More

Negotiate Your Way Out Of Debt

Eliminating your debt is a daunting task. What can you... Read More

Avoid Bankruptcy

The first but definitely not the easiest thought that comes... Read More

What Your Mama Never Told You About Debt Consolidation Services

When someone is extremely deep in debt, and he or... Read More

Exploring Your Options for a Consolidation Loan UK

Whether you're wanting to consolidate your debt to avoid bankruptcy,... Read More

What is a Debt Consolidation Loan?

If your objective is to reduce interest rates and lower... Read More

Debt and New Spirituality

Overcoming the stigma of being in dept, grow in self-confidence... Read More

Debt Consolidation: Friend or Foe?

Debt consolidation has become big business in this country over... Read More

Reducing Credit Card Debt

One of the easiest "things" that can happen in life... Read More

Getting the Most Out of Consolidation Loans UK

Before letting too much debt or too many payments get... Read More

Consolidating Your Government Student Loans

A Consolidation Loan allows you to combine your federal student... Read More

Debt Consolidation Company and Companies

Debt consolidation companies have dotted the debt solution landscape as... Read More

Credit Counseling ? Congress Offers No Details in New Law

The recently passed Bankruptcy Abuse and Consumer Protection Act was... Read More