Debt Consolidation Loans Can Leave Atlanta Residents With More Debt
Taking out a loan to pay off debt doesn't really make sense - after all, a loan means more debt.
But that's exactly what millions of Americans do each year when they sign up for debt consolidation loans. From the alluring promises made in debt consolidation ads, it's hard not to be curious. Combine all your debts - mortgage, car loan and credit cards - into one easy low-rate payment, they say. Save thousands a year! Wipe out credit card debts!
It sounds too good to be true - and at DebtStoppers, we know that means it probably is!
Let's look at the first part of the illusion - those low interest rates. Sure, the rates they advertise might be possible - for those among us with the very best credit. But if you have so much debt that you can't pay it off alone (hence the interest in consolidation!) you are most likely not going to qualify for those rates.
In most cases, debt consolidation means refinancing your mortgage or taking out a home equity loan at a rate not that much better than what you were previously paying. Except now you've got a whole lot more eggs in one basket. By stretching all your payments out over the period of your mortgage, you'll probably end up paying more than your car or credit card balances are worth in the long run. And if you have trouble making that one not-really-so-easy payment, you could lose your house.
Then there are the fees. That's right, for processing your loan, a debt consolidation firm will usually want an upfront fee - sometimes hundreds to thousands of dollars. And by the time they get all your paperwork processed, you may find that they tack on multiple new fees or a higher-than-discussed interest rate, hoping that you'll be so eager to get on with it that you'll sign anyway. Believe it or not, that's the best case scenario. The worst case scenario? They'll simply take your upfront money and disappear, never to be heard from again.
Debt consolidation does not equal debt relief. If you want to lower debt, you should use any extra money to pay it off - not to spend on additional fees and interest. If you can't afford to allocate money towards paying more than your minimum payments, bankruptcy can help by offering a designated payment plan and, in many cases, discharging some of your debts. Unlike debt consolidation, bankruptcy doesn't require loans or interest rates, it offers you legal protection from foreclosure, and, oh yeah, it's also your right as a U.S. citizen
Interested in learning more about bankruptcy? Try a free one-on-one debt analysis with an Atlanta bankruptcy attorney.