Do you Think it is really a Good Idea Applying for Unsecured Debt Consolidation?
There are many walking wounded around these days – people with huge credit card debt who don’t really know what they should do about them. The idea of unsecured debt consolidation to these people often sounds like some kind of a magical cure to all their money problems. Here is someone offering them a way to lump all their payments into one convenient payment and perhaps a lower monthly payment as well. What is not to like about this idea anyway? It’s practically a free pass out of debt correct? This really isn’t true though. If you don’t know how to use it the right way, unsecured debt consolidation can put you on the expressway to financial ruin and inevitably bankruptcy.
So how is it that debt consolidation can spell trouble? To begin with, consolidation does nothing to help anyone overcome the irresponsible spending habits that got them into trouble in the first place. And then, debt consolidation, putting all your loans in one place, is just logistics, if you think about it. The loan they give you to take care of all your debts is often a lot more expensive than the debt you’re trying to get rid of in the first place. And then, they saddle you with all kinds of upsell deals – credit insurance, hidden fees, all the fixings.
There are usually two kinds of unsecured debt consolidation loans. The first kind, which is always the cheaper one, makes an applicant a loan in return for collateral placed with the lender or bank. It is usually the applicant’s home that they accept as collateral. The other choice is personal lending – where they hand out a loan with no collateral at all – an unsecured loan for debt consolidation. Certainly, using your home to pay off your credit card loans can be a pretty stupid and boneheaded move. But choosing a personal loan to do it can be pretty boneheaded in another way as well
To begin with, the interest rates you pay on personal loans if you have poor credit, is usually about 20% and up. And that’s not including the 10% fees they charge for the whole transaction. If you think about it, the only way that debt consolidation loan can ever make sense is if you can get a low-cost loan for it. The cost of the loan has to be lower than what you pay for your credit card debt in the first place. The way the lenders make it seem tempting is that they offer you lower payments instead of lower interest rates. Borrowers get a bit confused and think that one is the same as the other. A lower payment rate only means that you keep paying them interest for far longer. It works out great for them in the long run, and it only works out great for you in the short run. They win, you lose.