When is Debt Consolidation not a Good Idea?

Have you seen numerous advertisements telling you how you could benefit from debt consolidation?

If you have then you would not be alone! However, you will notice that all debt consolidation loan advertisements tell you only about the advantages of debt consolidation, but they never tell you about the potential problems that you could encounter.
Each day we are faced with advertisements online, on TV and in newspapers and magazines. But is debt consolidation really a good solution to your debt or are there times when it would not be the right option for you?


What is Debt Consolidation?
Even though you are bombarded on a daily basis with advertisements about debt consolidation, it is still possible that you may not understand exactly what it involves.

Basically debt consolidation is a loan that is lent to people who have a high amount of debt with a number of different creditors. When you do have more than one creditor it can often be a struggle keeping up with the various repayments that have to be made each month. It can also be financially crippling having more than debtor to pay and so a consolidation loan aims to make it easier for you.
It extends the amount of time that you pay the loan back, lowering the monthly repayments in the process. It sounds fantastic but there are times that debt consolidation may not be right for you.

Why Debt Consolidation Might Not be the Answer
There is no doubting that debt consolidation can really help you out in some instances. However, there are times when it could actually make the problem worse, not better.

One of these instances is if you have student loans . It might seem like a good idea taking out a consolidation loan to pay everything else off and to have extra money left over each month. However you need to take into account that you will be paying the loan back for potentially up to thirty years. So if you finish university at the age of 21 then you could still be paying off your student debt when you are 51! When you think of it like that it will soon make you think twice.

Having such a long term loan commitment can make the option of getting a mortgage difficult. The housing market is never reliable and these days so many people struggle to afford their mortgage repayments. That is without the added pressure of loans and other financial commitments. So if you do have a consolidation loan to pay off then it may affect the likelihood of you being able to afford a mortgage.

It is also not a good idea if you only have one creditor. Consolidation loans are specifically designed to deal with multiple debts. They combine them into one easy to manage repayment. So you will not feel the benefits of the loan if you only have one creditor.

Overall a debt consolidation loan is not always the right answer. You need to take into consideration that it is still a loan even though the repayments are sometimes significantly lower than what you are currently repaying. It is a very long term commitment that you will have to worry about and so it does need careful consideration. It may be a better option to look for a shorter term solution, rather than to commit yourself to up to thirty years worth of debt!

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