Debt Consolidation Depot
Debt Consolidation & Financial Information Resource Center
To get a low interest loan to pay off debts usually means pledging the most valuable item a person owns, usually their house. With this low interest loan one can then pay off their high interest credit cards and concentrate on paying off the house loan.
Although almost all debt consolidation programs insist on timely, regular payments, they are likely to be more willing to work with you if you need to make one or two late payments due to a medical or some other emergency. Pledging one’s very home to pay off excessively high interest payments and debt can be avoided.
This is another problem with the low interest loan option: You’re not taking advantage of the breaks on interest and sometimes even the principal that a debt consolidation company can negotiate on your behalf.
Okay, but say one decides to take the low interest loan option and they only have that loan to pay off. Your credit cards now have no balance so maybe you buy a few things here and there until the debt is out of control, again. Although everyone likes to think it won’t happen to them, every day people end up with their credit cards maxed out again AND having to service a second mortgage.
In a study of the efficacy of debt consolidation
loans, the FDIC concluded, "…some consumers will increase credit
card and other consumer debt after a debt consolidation package is
completed, thereby weakening their ability to repay outstanding debts and
increasing the likelihood of bankruptcy."
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