Make Sure Debt Consolidation Help is Actually Helpful

The allure of consolidation loans is strong, especially when so many people are struggling to pay even the minimums on the credit cards, medical bills, and other debts. According to the ads, "debt relief is only a click away!" "You can cut your monthly payments in half!" and "Cut those interest rates down to nothing!" Everything, from the attractive promises to the use of exclamation points is designed to create both a sense of urgency and the belief that only consolidation will help you out of your current financial situation. Will it? It is possible that this method may work for you. Before you agree to a contract, though, make sure that your debt consolidation help is actually going to benefit you in the long term.

If we are to believe the ads, it is easy to get a consolidation loan large enough to cover your debt and with very low interest rates. This way, we pay less per month. It does sound great. But, as the president of Kays Financial Advisory Corp., and Achieving Your Financial Potential author Scott Kays explains, "The biggest myth about debt consolidation loans is that they are easy to get."

The rates and terms you see advertised are for "qualified borrowers," or those with great credit scores. Because you are struggling with debt, your credit score is likely to be in rough shape. This means that the lender is taking more of a risk on you. To compensate for that, they charge higher interest rates. These can be as high as 21 to 22%, which is likely higher than what you are paying now. Your monthly payment with a loan may be lower, but you will end up paying more. And in fact, some people find that they are paying the same or even more per month than they were before. If you want to consolidate, be sure that it makes financial sense for you.

Another issue with consolidation is that you can work on your own to negotiate with creditors. You can lower your interest rate or ask for extended payment options if you make it clear to the creditor that you are having trouble paying. Hiring someone to do this can take away a lot of stress and anxiety, but keep in mind that you are paying a fee for this. Usually, consolidators take about 10% of your monthly payment. Again, this may be worth it to you, but it is something you should be aware of.

Reputable consolidation companies will make all of this clear to you and explain both the benefits and the risks. You can weigh this information so you can make the best decision for your particular situation. Consolidation makes sense for some people, and it can work. The important question is whether you are one of the people it will help. Before you decide, be aware that interest rates may be higher because of your credit score, the total amount of time you pay on your debt may be longer, and you may end up paying more in interest than you would have previously. If you are not sure if consolidation is for you, speak with a qualified consumer credit counselor. You can get out of debt. The key is finding the right program.