The Disadvantages of Debt Consolidation Loans

Just as there are many potential advantages for choosing debt consolidation loans, there are also many potential disadvantages you need to understand. The potential disadvantages to be aware of include:

• Hidden Costs
  There are many hidden costs that are possible when dealing with debt consolidation loans, such as unspoken penalties and costs for settling existing loans, and possibly broker commissions. Sit down with your lender and discuss every charge and fee that will apply to you.

• More Money
  It is possible that although your monthly fees are reduced, the overall total of your debts could rise due to the longer payback period. Be aware of the overall cost and make sure you are paying less money, not more.

• One Creditor
  Just as one creditor can be an advantage in certain situations, it can also be a disadvantage. If you are having a hard time paying your monthly fee, having one company to deal with may make or break you.

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• Payment Protection Insurance
  Many debt consolidation companies add PPI – Payment Protection Insurance – into their cost without a due explanation. Be aware and shop around for the best overall deal on insurance to cover your payments if you befall sick, die or become unemployed. Single premium credit insurance is one of the most popular ways lenders increase their profit on debt consolidation loans.

• Credit Score
  Applying for a new line of credit and closing out older accounts can harm your credit score in a big way. Ask what your score will be before and after consolidation.

• Property Risk
  If debt consolidation includes a second mortgage or secured loans, you may be able to lose your home and property. Make sure that your loan is feasible and that you will be able to keep your good faith and your possessions.

• Unexpected Emergencies
  Unexpected emergencies, such as losing a job or medical costs, may hinder your ability to pay your bill and hurt your credit as a result. Once you have only one loan payment, you are vulnerable to unexpected situations that could easily mark your credit.

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