Debt consolidation loans can be a good option for simplifying your finances and saving money on interest payments. But if you don’t find a trustworthy lender and a good interest rate, then there’s a chance that debt consolidation loans could negatively affect your finances and your future borrowing options.
There are two main reasons why people choose to consolidate their debts. The first is that combining several debts into one makes managing your budget and your finances much easier. When people have so many different payments, interest rates, and due dates it’s easy to lose track of them or to miss payments. But by combining them you can focus all of your energy on one loan, one payment, and one interest rate.
The other reason many people choose to consolidate is to save money. It’s not a guarantee that you’ll save money by consolidating your debts, but if you can get a good interest rate you might. Having a good interest rate on your new loan means that you might pay less in interest than you would have on all your other loans.
The only way that a consolidation loan would be bad, is if you use a lender that isn’t trustworthy or credible. It’s an unfortunate fact of life, but there are a lot of lenders out there that try to take advantage of borrowers in need. And consolidation loans may be one way that they do this.
So what should you watch out for? Well, there are a variety of red flags when it comes to predatory lending. Here are just a few:
- Extremely high interest rates
- Unfavorable terms and conditions
- Confusing paperwork, terms, or conditions
- Hidden fees and charges
- Very short repayment periods
If a lender uses these tactics, it’s probably best to steer clear. Make sure that you’re researching any lender you’re considering. Check their website, read reviews, ask questions and never sign for any loan you’re not sure about.