Today, when people start having trouble with their finances, they may look into bad debt consolidation. This them reduce the amount of their monthly payments and number of creditors. While this may be a good last resort strategy, consumers need to look out for some key issues when considering bad debt consolidation. Let’s jump into these key issues.
The first of the dangers of bad debt consolidation is that often the reason the person gets into trouble is that they are not very good money managers. Often, they open new accounts that put them right back in the same situation or worse. Bad debt consolidation is not meant to be a bandage. It’s meant to be a last resort in fixing a dire situation.
The second of the dangers associated with bad debt consolidation is that this is often a last step before bankruptcy. The government now requires consumers to take this action before entering into bankruptcy. Bad debt consolidation can have an adverse effect on your credit, similar to bankruptcy if you do not know what you are doing.
The third danger in using bad debt consolidation as a means to control debt is that the lender often requires collateral to secure the consolidation loan. This means that you may have to tie up equity in your home or other personal property to secure the loan. The danger is if you continue to be a poor money manager or you have a major crisis such as severe illness or job loss occurs. You can lose your home and the equity in this or other personal property. Beware of any lender who requires an equity or property collateral security.
It’s important to weigh all the factors before you consider bad debt consolidation. Because you are consolidating bad debt, you may be at the end of your rope. At this stage of money crisis, it’s important to work with a trusted financial advisor because your options are not good. Check all financial advisors out with the Better Business Bureau because the last thing you want is to get in even worse financial circumstances as a result of a shoddy advisor.