Paying back your debts on time takes a lot of effort and discipline. There are probably instances where you are not able to make the due payments on time but you know what they say about falling off from a horse; once you fall off you should get back on immediately. The same goes to paying your debts on time. It might not do you any good to allow yourself to slip into the non-paying mode too many times because you might run the risk of making it a habit and before you know it, you are too behind on your payments to even afford to pay them. When this happens, you will most likely consider debt consolidation loans as a way out of this.

Exactly what is a debt consolidation loan? It is a loan that you take in order to obtain enough funds to pay off your existing creditors. Although debt consolidation loans can be one of the most effective ways to rid yourself of too many debts, there are some disadvantages that you might need to consider because this particular kind of loan is not a one-size-fits-all solution for every single outstanding debt situation. Listed below are some of the disadvantages of debt consolidation loans that can help you seriously weigh in your options before making a decision:

i) If you are planning to take a debt consolidation loan to pay for your credit card debts you might have to be extra careful because you will most likely use the money to pay for your old credit card debts but may be less likely to think of the consequences of acquiring new debts by using your credit cards even more than usual. So if you are set to apply for a consolidation loan to be rid of your credit card debts, you might have to take the extra precaution to ensure that you will not end up getting yourself into a new and possibly deeper debt.

ii) When you sign up for a debt consolidation solution like a consolidation loan, your lender will most probably allow you to pay a comparatively small amount of money every month. But bear in mind that when the monthly figure is small, the period of the loan is normally longer. Depending on the terms and regulations of the loan, you will most likely be in debt for a longer period of time than if you opt to concentrate on paying off your creditors aggressively on your own without a loan. All it will probably take is discipline and determination on your part to be strong and brave enough to change your lifestyle to accommodate the monthly payments to your credit card companies.

iii) Most consolidation loans offer relatively lower interest rates. But the truth is that if the principal amount is still large, the lower interest rates might not make any difference at all. Consolidating your debts would mean that you will be combining all your existing debts and add them all up into one single amount that you will later have to pay to one single creditor. Although this will make it easier for you to keep track of your debt due to the fact that it is now organized into one single entity, the monthly payment that you will probably have to pay is still the total of all your previous debts simply rolled into one. So you might end up having to pay the same amount of money every month except for the lower interest rate.

iv) Some debt consolidation management companies might require you to put up some form of collateral to your consolidation loan. This could mean that you would be taking a home equity loan to consolidate your debts. This might be particularly dangerous because should you default on the payments, your lenders or creditors would have the authority to repossess your home and you would end up losing your home. Although cases like these are rare, the danger is still there so you might want to put it into careful consideration before taking the dive.

Generally, consolidation loans are designed simply to reorganize your loans to make it easier for you to keep track of your payments and credit score. You might be mistaken if you think that consolidation loans will considerably reduce your debts or enable you to pay less than what you previously owed. This is why it is always advisable for you to keep yourself well-informed on the terms and conditions of your consolidation loan before committing to it.

Author Bio: debt consolidation loans debt consolidation solution debt consolidation management

Category: Finances
Keywords: debt consolidation loans,debt consolidation solution,debt consolidation management