Debt consolidation is one of the most controversial topics of financial world. It is frequently debated in talk shows on TV and personal meetings. Like anything in this world, it has some pros and cons. Generally whenever people talk, they talk about the benefits of Debt Consolidation. Our purpose is to keep you aware of the other side of the picture as well. This article contains some drawbacks of debt consolidation that will help you to be prudent in your decisions. Drawbacks of debt consolidation are given below;
- Purpose of debt consolidation is to be debt free. But how can you be debt free by taking another loan?
- People taking loan do not understand that they are getting into deeper financial troubles by taking this loan.
- It is a known fact that through debt consolidation you can pay all your previous debts and you do not need to pay them yourself. We want to clarify here that loan consolidation just accumulate your debts into one debt. It does not lessen the amount of debt and you still have to pay this debt yourself.
- By lengthening the time period of repayment of debts and reducing the monthly payments, you are actually increasing your financial burden because you have to pay more in longer period as financial charges. It is the greatest drawback of debt consolidation.
- In order to secure a debt, you need to place any of your assets as security against loan. As a result, you convert your unsecured loan into a secured loan. Most people provide their homes as security without knowing that they are putting themselves at a risk of losing their homes.
- Another benefit associated with debt consolidation is “tax credit”. Tax credit is not received on all the debt consolidation loans. It is received only in case if you get your educational loan consolidated by federal student loan consolidation program that is governed by government of United States of America.
We suggest you to have view on the benefits of debt consolidation placed on this website before making any decision. After all, it will be your personal decision whether you want to payoff the debt in short time or you want to remain under its burden for a longer period of time.