| You are swimming in debt. You have 4 credit cards | | | | have one creditor to deal with. If there are any |
| maxed out, a car loan, a consumer loan, and a house | | | | problems or issues, you will only have to make one call |
| payment. Simply making the minimum payments is | | | | instead of several. Once again, this simply makes |
| causing your distress and certainly not getting you out | | | | controlling your finances much easier. |
| of debt. What should you do? | | | | 5. Tax Breaks: Interest paid to a credit card is money |
| Some people feel that debt consolidation loans are the | | | | down the drain. Interest paid to a mortgage can be |
| best option. A debt consolidation loans is one loan | | | | used as a tax write-off. |
| which pays off many other loans or lines of credit. | | | | Sounds great, doesn't it? Before you run out and get a |
| I'm sure you've seen the advertisements of smiling | | | | loan, let's look at the other side of the picture - the |
| people who have chosen to take a consolidation loan. | | | | cons. |
| They seem to have had the weight of the world lifted | | | | Cons |
| off their shoulders. But are debt consolidation loans a | | | | 1. Easy to get into further debt: With an easier load to |
| good deal? Let's explore the pros and cons of this | | | | bear and more money left over at the end of the |
| type of debt solution. | | | | month, it might be easy to start using your credit cards |
| Pros | | | | again or continuing spending habits that got you into |
| 1. One payment versus many payments: The average | | | | such credit card debt in the first place. |
| citizen of the USA pays 11 different creditors every | | | | 2. Longer time to pay off: Most mortgages are the 10 |
| month. Making one single payment is much easier than | | | | to 30 year variety. This means that rather than spend |
| figuring out who should get paid how much and when. | | | | a couple of years getting out of credit card debt, you |
| This makes managing your finances much easier. | | | | will be spending the length of your mortgage getting |
| 2. Reduced interest rates: Since the most common | | | | out of debt. |
| type of debt consolidation loan is the home equity loan, | | | | 3. Spend more over the long haul: Even though the |
| also called a second mortgage, the interest rates will | | | | interest rate is less, if you take the loan out over a 30 |
| be lower than most consumer debt interest rates. | | | | year period, you may end up spending more than you |
| Your mortgage is a secured debt. This means that | | | | would have if you had kept each individual loan. |
| they have something they can take from you if you | | | | 4. You can lose everything: Consolidation loans are |
| do not make your payment. Credit cards are | | | | secured loans. If you didn't pay an unsecured credit |
| unsecured loans. They have nothing except your word | | | | card loan, it would give you a bad rating but your home |
| and your history. Since this is the case, unsecured | | | | would still be secure. If you do not pay a secured loan, |
| loans typically have higher interest rates. | | | | they will take away whatever secured the loan. In |
| 3. Lower monthly payments: Since the interest rate is | | | | most cases, this is your home. |
| lower and because you have one payment vs many, | | | | As you can see, consolidated loans are not for |
| the amount you have to pay per month is typically | | | | everyone. Before you make a decision, you must |
| decreased significantly. | | | | realistically look at the pros and cons to determine if |
| 4. Only one creditor: With a consolidated loan, you only | | | | this is the right decision for you. |