Let’s say you have ,000 in unsecured debt, including a two-year loan for ,000 at 12%, and a four-year loan for ,000 at 10%.
Your monthly payment on the first loan is 7, and the payment on the second one is 3. The debt consolidation company says they can lower your payment to 0 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Who wouldn’t want to pay 0 less per month in payments?
So if you stay in debt longer, you get a lower payment, but then you pay the lender more.
Debt consolidation is nothing more than a con because you think you're starting with a clean slate.
But the truth is the debt is still there, as are the habits that caused it—you just moved it!
The biggest consideration should be paid to the affordability of one large loan as opposed to many smaller debts.
In other words, it may be more convenient to have just one big loan, but what is the real cost of that and how does it compare financially to having multiple smaller loans.
The new laws mean that potential credit providers now have access to more comprehensive information about your level of indebtedness and more specifically, the way you manage your debt.