Debt Consolidation Loans
Debt Consolidation Loans are loans in which the borrower obtains one loan, and uses the funds to pay off other debts, and often, higher interest rate credit cards as well. The goal is to "consolidate" multiple higher interest rate balances into a single, more manageable, lower cost loan. While debt consolidation loans are very tempting and can lead to overall savings, they should also be carefully considered before moving forward because they can be very risky for undisciplined individuals.
The fact is, it is estimated that seven out of ten people who use a home equity or other type of loan to consolidate debts end up with the same amount, or higher, debt load inside of 24 months. Also, if you're taking on more debt to pay off old debts, it's likely you may not qualify for those low rates being advertised
The bottom Line: Borrowing money to pay off other loans can offer money-saving benefits, but be careful and be disciplined - if you default on payments, you could end up losing your home. That's a very high trade-off for eliminating unsecured credit card debt, especially when you consider that credit counseling and debt management programs can assist you with out-of-control credit card debt.
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