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Are debt consolidation loans a good idea

are debt consolidation loans a good idea


Debt consolidation loans are obviously designed to consolidate all of your debt under one loan so you will only have to keep track of one payment each month. This is also intended to place high-interest credit card debt under a lower interest rate so you will end up paying less in the long run. Many people use home equity loans for this purpose so they can also deduct the interest from their income taxes---something you cannot do with most other types of debt.


The problem with debt consolidation, however, is that you are taking a number of unsecured debts and putting them into a secured loan. This means that, if your financial situation worsens, you lose your job or you have a major medical expense, you will still be responsible for paying the consolidated debt---even if you file for bankruptcy. If you have used a home equity loan to consolidate your debt and are later unable to pay, you could lose your home.


Bankruptcy stays on your credit report for at least 10 years post-discharge. This can greatly complicate your ability to obtain credit at a reasonable interest rate, and a bad credit score can increase your car insurance rates no matter how well you drive and how few accidents you have had in your lifetime. This is why many people choose to consolidate their debt rather than file for bankruptcy.

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