Debt Consolidation Does Have Some Drawbacks
Debt Consolidation has many advantages, but there are a few things about it that must be considered before contacting a debt consolidation company. Some prior idea of how these concerns affect debt consolidation for you could be a life saver down the road.
A large number of the ‘non-profit’ credit counseling companies are hiding behind a scam operation that takes advantage of the indebted person to profit their own business. It is easy to see that these kinds of operations do not have any real interest in helping you get out of debt, only deeper into debt—to them.
Many times, by simply asking your creditors for them, you can get the same benefits that a credit counseling company offers to you. For example: with a student loan, on some schedules after a certain number of on-time payments your interest rate is lowered a little bit. If you go with a debt management program or consolidate your student loans with a bank or other lender, you start over with the time period, so it can actually take longer for your interest rate to go down.
Debt consolidation loans through a second mortgage or a bank loan has the disadvantage of being a secured loan, and you run the risk of losing your home when you fail to pay the bill. In addition, you are still in debt, and usually with the same amount or only a slightly lower amount. Too many people think that debt consolidation pays off their debt and they no longer have to be worried about it, so they go back to running up huge credit card bills again. Thus, it is easy for a person in debt to end up in even more debt after they consolidate, and there are only so many times you can consolidate. You have to have yourself in the correct frame of mind if you are going to consolidate your debts, it is important also to have enough pure self control to keep from using bad spending habits that will put you back in the same situation you were in before consolidating.
One other disadvantage to the debt management program is that you will not be able to get any new credit during this time, although for some people this is good because they need time to learn how to discipline themselves to keep out of debt.
Some debts may not qualify for a debt management program, so you probably will still have to make multiple payments each month.
One other disadvantage could be when you get an income increase, by way of a raise or large tax return, some debt management programs do not allow one to make extra payments ahead on your debts. An extra check may be placed in an account at the debt consolidation company to be your next month’s payment. If you have extra money and you are using a debt management program, you should put that extra money into a special fund to take care of emergencies or into savings.
There are advantages and disadvantages to bill consolidation, you have to be the judge of whether the advantages outweigh the disadvantages for you.
