Downsides About Debt Consolidation Plans

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Downsides About Debt Consolidation Plans

Friday, October 16th, 2009    Subscribe To Our Feed

debt consolidation can offer several advantages to the average consumer, however, there may be a few concerns to be aware of,  before you go out and try to locate a debt consolidation company.  If you have a bit of understanding about how these factors will affect your debt consolidation plan, it may help you stop getting further into debt.

Many ‘non-profit’ credit counseling companies are really operating scam artist businesses for their own profit.  It is easy to recognize that these kinds of operations do not have any real interest in helping you get out of debt, only deeper into debt—to them. 

Most of the benefits provided by a credit counseling company are actually benefits you can easily get from your creditors, just by requesting them.  For example,  with some  student loan schedules, after a certain number of on-time payments have been made your interest rate is reduced a bit.  When you are going with a debt management program or consolidating your student loans through the bank or some other lender, you will be starting the time period over, thus it will take you longer to get a lower interest rate. 

The big disadvantage of debt consolidation through a second mortgage or a bank loan, is the fact that this is usually a secured loan, so failure to pay this bill according to the loan agreement, could cause the loss of the home.  Additionally, you will still be in debt for about the same amount or perhaps for a slightly lower amount.  Some people look at this type of debt consolidation as a type of debt cancellation and then feel as though it is okay to go ahead and charge up their balances on their credit cards again.  Thus, it is very easy for a person who is already in debt to end up in even more debt after they consolidate, because, there are just so many times you can consolidate your debts. 

You must have your mind in the right frame of thought if you chose to consolidate your debts; it is important, also, to have enough pure self control to keep from using bad spending habits that can draw you back into the same situation you were in before the consolidation.

The disadvantage in a debt management program that can work to some people’s advantage, is that during this time you cannot get any new credit; this gives them time to learn how to control their spending habits.    

Some debts, simply do not qualify for a debt management program, so you may still have to make multiple payments each month. 

Another disadvantage of consolidation loans is that some debt management companies do not allow you to pay ahead, if you are fortunate enough to get an increase in your income, a raise or a large income tax return.  An extra check may only be placed in an account to be applied as your next month’s payment at the debt consolidation company.  It may be a wiser move for consumers using a debt management program, to put any extra money they may have in their own emergency fund or savings account. 

debt consolidation has a few advantages and a few disadvantages, so make your own judgments as you weigh the differences.