Debt Reduction Advice | Debt Reduction Advice

It is no surprise that debt consolidation loans are growing in popularity. The nation’s weak economy has left many without jobs, while many of those fortunate enough to still be employed are working fewer hours as their employers look for alternative ways to cut costs. At the same time, these people’s home loans, auto loans and credit-card bills aren’t getting any lower. In fact, individuals are running up their debt at alarming levels. The Web site CreditCards.com reported that the average household credit debt stood at more than $8,000 in the middle of 2009. To address the debt problem, many consumers are turning to debt consolidation loans; but are these loans a good choice? Not surprisingly, it all depends on ones particular situation.

How Severe Is Your Debt?

Do you owe more than $10,000 in credit-card debt? Are you struggling to pay your minimum monthly payments? Are your debt problems affecting your health, keeping you from sleeping or eating properly? If so, a debt consolidation loan might be a good choice. Under these loans, you send a single monthly payment – one that you can afford – to your debt consolidation company. This company then divides your payment among your creditors in an agreed-upon fashion. While you are making your payments, your creditors and their collection agencies will not call you. Debt consolidation loans can be a way for you to lift the burden of debt from your shoulders.

Do The Negatives Outweigh The Positives?

Debt consolidation loans, though, are not perfect. For instance, they usually come with high interest rates, meaning that you might end up paying more than you would have had you been able to simply pay off each of your creditors individually. Debt consolidation loans also come with their own fees, which will add to the amount of money you ultimately pay to eliminate your debt. Finally, taking out a debt consolidation loan will negatively impact your credit score, and a low credit score could make it impossible for you to qualify for a home or auto loan in the near future and increase your interest rates if you do borrow money.

The Questions To Ask

If you decide that a debt consolidation loan is the best choice for you, make sure to ask the right questions. By doing so, you reduce your risk of paying too much. Ask your debt consolidation company to give you a written statement that includes any fees they charge, the interest rate you’ll pay, the time it will take to pay off your debts and the penalties you’ll face if you miss a payment.