Debt Consolidation

Well, for some people, debt consolidation loans are the panacea for all ills,
and work very well. For many others, this type of loan has been found to
come with quite catastrophic side effects, and other forms of debt
management would have been better.

To decide if it is right for you, it is probably worth defining what a debt
consolidation loan is.
A debt consolidation loan is where a series of unsecured loans, including
credit card balances as well as personal loans, are paid off by one large
amount, which is received in the form of a secured loan, paid back normally
over a longer period of time. It is essentially a second mortgage on your
home, not just a loan that will pay off all the other bills.

Many companies advertise these loans, with the main selling point
being that they will reduce your monthly payments (some companies
call it "restructuring" your debt, but it's the same thing). They may also
add the other advantage of lending you an extra amount on top of your
current debts, so you have a lump sum with which you could buy a car,
or improve your home. This is not philanthropy, the more they lend you,
the more you have to pay back, and the more money they make.

Do not underestimate the fact that this is a secured debt. You are
getting this lending because your financial situation is bad, with your
monthly repayments difficult to afford. But the situation could go from
bad to worse. Let's say that when you got the lending you had many
unsecured debts but were at least employed. You take this type of
lending, but lose your job, with no insurance. A secured debt means
that your collateral is at risk, and even in a bankruptcy situation can
be seized. Even though it is a second mortgage, your property could
be foreclosed.

Even if you have every intention to pay off a lending, remember that the
best-laid plans may not always work. You probably took out that last
credit card intending to pay off the balance each month, but unexpected
things happen in life, and could do so once you've taken out this type of
lending. If you do go down that route, you have to be very comfortable
that should you have an issue with your health, or your employment
situation, and perhaps another financial surprise you would still be
able to keep up payments. If that isn't clear enough, how about this:
This type of lending means you are "betting the house" on your ability
to repay your debts. If you feel that is a bet you can win, then it could be the right solution.