The Skinny on Debt Consolidation Loans

A Credit Article Contributed by Mark Mcclelland

So You Think You Need a Debt Consolidation Loan

You're drowning in debt and the tunnel is so dark you can't even see it, much less the light at it's end; but just yesterday your best friend told you that "hey, a debt consolidation loan's the way to go."

"Hmmm... what was that all about" you might wonder. Well, check it out; and going on-line is a great place to start. But after you've looked at all the "lowest rates for your any need" kind of sites, you'll discover that there are only a very few circumstances where a debt consolidation loan may actually be of benefit, but there quite a lot of cases where one wouldn't be.

Since most all debt consolidation loans are based on what called "secured" debt, meaning that you're offering up something that has collateral value - like you house - to secure the loan, it's important to have a clear understanding of the good and bad side of these loans.

The Upside and Downside to Debt Consolidation Loans

So, here's a short but definitely not all-inclusive list of the upside and downside aspects of debt consolidation loans.

* You reduce the number of physical payments you make per month from many to one - that's good.

* you might be able to get a reduced interest rate by using your house as the collateral - reduce rate: that's good, but house as collateral: hmmm

* Typically your total monthly outlay will be lower - that's good.

* You only have to deal with a single creditor - that's good.

* You might get some tax breaks out of the deal - and that's good as well.

BUT

* Your credit card are "cleaned" meaning that your free to spend - hmmm, maybe that's not so good.

* It'll take longer to pay off your debt, after all, this is a new loan, probably with a lower payment, so it'll take longer, maybe 20 or more years, to pay off - that's not so good.

* You'll more likely than not end up paying out more over the life of the loan; even though you're making a lower payment, you're paying off the loan over a much longer period of time - not a good thing.

* You can, in fact, loose everything if you default on this loan, since it's a secured loan - and that's definitely not a good thing.

Shopping around for Debt Consolidation Loans

More good's than bad's? Well, that's OK, but be sure ask these questions when shopping around for the best deal.. and you WILL be shopping around won't you?

* Are there any fees involved (small one's are ok), or commissions (large one's are bad).

* What interest rates are available (they should be significantly less than the "composite" of credit card rate).

* What will your monthly loan payments be (they should be less that the sum total of your current monthly payments), and for how many months (could be upwards of 20 to 30 years - 240 to 360 months).