Why you should and should not use debt consolidation

How To Pay Off Debt

It is definitely easy to spend your money on a lot of things. It is sometimes hard to even notice how our small spending could pile up to more debts in the future. Before you know it, you find yourself trapped by paying for more things that you cannot actually afford.

This happens all the time nowadays especially with this economy heading into a recession, people are charging the necessities like groceries now. And once you are deep in debt, it is hard to get out of debt.

Debt consolidation loans could do wonders for you. In debt management agreements, only unsecured debt is considered (credit cards). But in a debt consolidation loan, all debt is considered...secured debt as well as unsecured debt.

But, a debt consolidation loan comes in the form of a second mortgage which is usually not a good idea. When you are into debt consolidation loans, chances are you will have a tendency to risk your possessions like your home and betting your way out to risking it in the future. This is why debt consolidation is not always one of the best ways to get out of debt.

You might also want to take a refresher course on debt management agreements and abreast yourself with how it really works. Even if at some point you have to declare bankruptcy, debt management agreements are also about unsecured debts. With bankruptcy, you can wipe out your unsecured credit card debt. When you make a debt consolidation loan in the form of a second mortgage, this debt that was once unsecured now becomes secured. If it comes to the point where you must declare bankruptcy, your home can be foreclosed. Again, this is why debt consolidation is not the best way to eliminate debt.

This point should not be taken lightly. Your home and the equity that you are establishing in it is your largest single asset. Your home mortgage is usually your highest monthly outlay.

Most debt consolidation loans promise lower monthly payouts but this isn't because the interest rate provided is lower than usual. Debt consolidation loans lower your monthly payments because in most cases your loan term is longer than what you were originally paying.