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The Good And Bad Side Of Debt Consolidation

You have to look at both sides of Debt Consolidation to make a decision. Before you go off to the debt consolidation magician beware of some side effects you many feel. If you get one of these loans, its probably because you already have a bad credit history.

You may end up getting the Third World treatment. Like Brazil is told they can roll over their loans but instead of paying 8 or 9%, end up paying 19-21% or more. Theyve been doing it for 25 years, and they still havent paid off their debt.

Another problem is that many people can, if not consolidate their debt, at least pay it off faster themselves merely by paying a little bit extra, for example another $60 to 100 on your credit card debt per month works wonders. If you get a debt consolidation company to do this type of work for you, you have to pay them about $40 to $60 a month, or in some cases 10% of the total payment. Thats money that may be better spent sending it directly to the credit card company.

What about all those low interest credit cards you can get as an introductory offer? Yes they are low interest, but only for 6 months or for a maximum of a year. You could have the problem of all these credit cards showing on your credit sheet after you have gotten the money out of them. Will that look good? Will they try to charge you some sort of fee? You may end up getting more than you bargained for.

Other options to consider: You can refinance your home (if you have one); you can get a home equity loan. This is something millions of Americans have done in the last five years of the real estate boom, and its the equivalent of turning your home into an ATM machine. True you can get lower interest rates, but if they are not fixed interest rates, an ARM (Adjustable Rate Mortgage) can blow up rapidly as interest rates go up. Also, if you are paying off a debt over 15 to 30 years, over time the interest charges accumulate and piggyback into a large debt. Think about what it means to have a $700,000, thirty year fixed mortgage on a $400,000 house. Finally, there are non-profit and other debt consolidation companies, who at least at first, can give you some free advice.