Is Debt Consolidation A Bad Thing

Online, November 28, 2011 (Newswire.com) - Some people have maxed out their credit cards because they've been out of work for longer than they'd like. Others have been trying to find work and are struggling to pay back student loans. Still others have simple racked up debt trying to keep up with those darn Joneses, who apparently have an endless supply of cash.

Millions of consumers are in debt, and putting aside the good debt/bad debt debate and forgetting how you got there in the first place, there's one thing that you just can't argue - people in this position need help.

Countless people each year turn to debt consolidation or debt negotiation to help them dig themselves out of debt. But is debt consolidation bad? Let's look at both sides of the debt consolidation coin.

On the positive side of things, debt consolidation can shift all of your high interest loans under one lower rate, which will make it much easier to pay off your total debt. Consolidating will mean one low monthly payment, which means fewer bank fees and less chance of missing payments. If you work with your lenders, you may find them willing to drop late payment fees or even lower interest.

With consolidation, you'll only have one creditor to deal with, less debt to keep track of and less stress. Consolidation means an end to calls from debt collectors as well.

If you consolidate, and creditors see you are making progress, some of them may be willing to forgive your past problems and issue new credit to you when the time is right. Paying off your debt will go a long way toward repairing credit damaged by your inability to meet your obligations.

But debt consolidation has a negative side as well. A debt consolidation loan is a secured loan, which means you would have to put up collateral in order to secure it. This can be a risky proposition, even in the best of circumstances.

Another negative is that debt consolidation lasts for a longer period of time than simply paying your debt off yourself, and you'll wind up paying more in interest.

Before you consider debt consolidation, look at both sides of the coin carefully. Be sure to read the fine print before you agree to work with a debt consolidation company, and know what you're getting into. Don't pay any fees up front, and make sure you are prepared to meet your new obligations.

And last of all, don't take on any new debt until your old debt is completely repaid - there's no need to jump from the frying pan into the fire.