Using Personal Loans for Debt Consolidation - Not a Good Idea

A Credit Article Contributed by Mark Mcclelland

If You're Considering Debt Consolidation, are Personal Loans a Viable Alternative?

Using personal loans as a vehicle to underwrite your debt consolidation efforts probably shouldn't be your first choice from among the many options available. Even though you may be showered with friends, whose pockets are bulging with spare cash, or your favorite banker is your brother in law, taking out a personal loan for debt consolidation purposes is more likely than not to loose you your many friends and alienate your in-laws (and regardless of what your personal feelings are in this matter, alienating your in-laws is NOT a good idea).

Even though you may not know how to even start tackling your debt problems, you shouldn't just sit back and watch your bills pile up either, hoping that somehow they'll all magically disappear. Although we don't usually like to do this, simply asking for help with these matters is undoubtedly the best place to start resolving your financial problems.

And there are quite a number of reputable organizations that provide honest and sincere help, that're interested in your being able to weather this storm, and have an experienced financial workforce that often works pro-bono to help you solve your debt problems.

Why are Personal Loans Not the Best Option in Debt Consolidation?

With the variety of alternatives out there, and with many of them being less risky than taking out yet another loan, you need to ask yourself if you've honestly looked at all the other options.

You can work with a credit counseling organization that will work with both you and your creditors to develop a debt re-payment plan the all can live with, and that doesn't require that you take out a personal loan.

You can refinance your home, or seek a second mortgage. This options lets you put your most valuable asset to work for you, rather than just sitting there and accumulating pennies of equity a day, when your consumer debts are probably costing you many dollars a day in interest charges alone.

Even for folks with a good credit rating, personal loans interest rates hover around 15% or so. For those of us that have less than stellar credit records, the rates are often closer to 20% or 21% - Ouch. In addition, "sub-prime" borrowers often face upfront fees of as much as 10% of that personal loan amount.

And as is often the case, the devil's in the details. For those few of you who can find a low interest rate loan, with no fees and charges, you might just be able to make a personal debt consolidation loan work. But for the vast majority of us, taking out a personal loan to support our debt consolidation needs is not really the way to go.

It's an unfortunate fact of life / finances, but people often look for lower payments rather than lower overall costs. Lower payments most often mean that it'll take quite a bit longer to pay off your debts, thereby inflating the total payback amount. And more often than not, even after consolidating their debts, people feed the fire by continuing to use their credit cards and running up new balances.

So If Not a Personal Loan for Debt Consolidation, What Then?

Well, as mentioned above, there are a variety of non-loan alternatives. The best place to start is by contacting a reputable credit counseling organization. And where might you find one of those, you might ask; the best place is with any organization that's accredited by the Association of Independent Consumer Credit Counseling Agencies and / or the National Foundation for Credit Counseling. You might want to look for a local (state) chapter Of Consumer Credit Counseling Services.