Simply put, a debt consolidation loan is a big loan that is taken out to pay off several small loans. While a debt consolidation mortgage loan can help solve many of your financial problems, it is not for everyone. There are a few things that you need to know before you decide to consolidate your debt.

Debt consolidation loans shift your debt

When you take out a debt consolidation loan to pay off high interest loans such as credit card debts, you will notice that you are paying out less money each month on your debt, but the point is you are still making a payment. A consolidation loan doesn’t eliminate your debt. The money will have to be paid back eventually. When you transfer your credit card debt to a consolidation loan, and you see your zero credit card balance, it is very tempting to start making purchases with your cards. This can lead right back to the problems that led you to consolidate in the first place, only this time, you will have consolidation loan to pay off in addition to your credit card balance.

Debt consolidation loans may cost you more in interest over time

While it is true that your consolidation loan will have a much lower interest rate than a credit card does, if you choose to pay the consolidation loan off over a long period of time you could end up paying more in interest.

Debt consolidation loans pose a risk to your home

A credit card company can’t take your home away from you for missed payments, but when you put your home up for collateral to receive a debt consolidation loan, falling off your payment schedule could mean the loss of your home.

There are many good reasons to apply for a debt consolidation mortgage loan. By consolidating your debt into one loan, you only have to deal with one statement and payment a month, and most likely you will lower the amount of money you are paying out each month. Chances are a debt consolidation loan will help you financially, but it is wise to consider all of the risks before you begin the consolidation process

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