Even Unsecured Debt Consolidation trades out one Debt for another
If you are considering debt consolidation, you need to realize that you will be trading out one debt for another. Under debt consolidation, you are attempting to reduce your monthly payments by wrapping your debt up into a single package. While this might benefit you in the short term, it may cost you in the long run.
Even if you are able to get an unsecured loan to do your debt consolidation, you will probably wind up owing more for a longer period than you do now.
The first appeal of a debt consolidation loan is that it will lower your monthly payments. In almost all cases, a debt consolidation loan will reduce your interest payments by extending the term of your debt.
This means that while you will have lower interest payments and save money on your monthly payments, you will be paying over a longer period of time. This often means that the debt you owe now will grow under consolidation. So, you could be trading less debt for more debt, under consolidation.
The same is true with a secured loan for debt consolidation. Such a loan is usually secured by a refinancing of your mortgage. Refinancing could offer you a reduced interest rate and lower monthly payments, but it will do so at the expense of lengthening your term.
For instance, if you have fifteen years left on your mortgage and find yourself in search of a debt consolidation loan, your current mortgage company, or anyone else you choose, will probably be happy to offer you a refinance loan for debt consolidation.
When everything is said and done, your current monthly bills will be paid off and the debt consolidated into your new mortgage payment, but instead of owning your home free and clear in fifteen years, it may now take twenty or twenty-five.
Sometimes debt consolidation is a necessary evil; just remember that no one is doing you a favor. All of the lenders are making money and even unsecured debt consolidation trades out one debt for another.
Even if you are able to get an unsecured loan to do your debt consolidation, you will probably wind up owing more for a longer period than you do now.
The first appeal of a debt consolidation loan is that it will lower your monthly payments. In almost all cases, a debt consolidation loan will reduce your interest payments by extending the term of your debt.
This means that while you will have lower interest payments and save money on your monthly payments, you will be paying over a longer period of time. This often means that the debt you owe now will grow under consolidation. So, you could be trading less debt for more debt, under consolidation.
The same is true with a secured loan for debt consolidation. Such a loan is usually secured by a refinancing of your mortgage. Refinancing could offer you a reduced interest rate and lower monthly payments, but it will do so at the expense of lengthening your term.
For instance, if you have fifteen years left on your mortgage and find yourself in search of a debt consolidation loan, your current mortgage company, or anyone else you choose, will probably be happy to offer you a refinance loan for debt consolidation.
When everything is said and done, your current monthly bills will be paid off and the debt consolidated into your new mortgage payment, but instead of owning your home free and clear in fifteen years, it may now take twenty or twenty-five.
Sometimes debt consolidation is a necessary evil; just remember that no one is doing you a favor. All of the lenders are making money and even unsecured debt consolidation trades out one debt for another.
[posted by : OFP on Apr. 13, 2010]
TAGS: debt, debt consolidation, trade, loan