Debt Consolidation Program Advantages and Risks

What Is a Debt Consolidation Program?

Debt consolidation services or debt management programs are often offered by non-profit credit counselling organizations. They are typically a combination of consumer education, counselling about your particular situation, and assistance accessing a debt consolidation loan.

Using a debt consolidation program may seem like a great way to get yourself out of debt, but before you go ahead with one you should take a look at the advantages and potential risks.

Advantages

1. As the name suggests, a debt consolidation program naturally offers debt “consolidation” help, combining multiple debts into one so consumers only have to worry about one debt or loan as opposed to keeping up with multiple debt repayments.
2. A debt consolidation program can reduce your monthly payments.
3. A debt consolidation program can give you a head start on credit repair.
4. A debt consolidation program can prevent you from making payments late.
5. With a consolidation program you can get the expert help you need to get your finances back on track.
6. A consolidation program will prevent creditors from harassing you or pursuing legal action.   

Risks

However, any debt consolidation program may carry with it the following risks:

1. The program will not automatically get rid of your debt; it will only transfer your multiple debts into one. You will still need to pay back the same amount of money eventually.
2. Ironically, debt consolidation services can cause you to fall even deeper into debt. For example, when credit cards are paid off by a debt consolidation loan, the newly available credit on those cards may tempt you to run up their balances again. If you max out those credit cards you could find yourself in even worse shape.
3. With a consolidation program, there is a small but significant possibility that you could end up paying more interest. A case in point is student loans debt consolidation – it can be challenging to find lower interest rates with other lenders
4. Some people choose to consolidate their debt with a home equity loan or home equity line of credit, using their house as collateral. Be aware that if you choose to do this, and do not make payments on time, you could potentially lose your home.
5. Some people choose to consolidate their debt with a home equity loan or home equity line of credit, using their house as collateral. Be aware that if you choose to do this, and do not make payments on time, you could potentially lose your home.
6. Depending on the type of debt consolidation program, it may not only result in payments over the longer term but also destroy your credit score.

Remember, a debt consolidation program no doubt offers debt consolidation assistance by helping you combine or consolidate your debt, but you should only embark on such a program if the benefits outweigh the risks and you are confident that you can make the payments.

Alternatives to Debt Consolidation

If you are finding it impossible to pay your monthly bills you may be a candidate for a consumer proposal – an arrangement that offers debt assistance in Canada to a large extent as it stops interest, protects you from creditor harassment, and may reduce the principal you owe. Alternatively, if your debt problems are more serious, consumer bankruptcy may be a relatively quick way to make a new start.

A Licensed Insolvency Trustee can advise you on the pros and cons of several debt help services such as, debt consolidation programs, consumer proposal, and bankruptcy. He or she will impartially evaluate your financial circumstance and will help to determine if one of these solutions fits your unique situation. Your first, confidential appointment is free. Contact a Licensed Insolvency Trustee by submitting a short contact form today.

More Information on debt consolidation:

• Debt Consolidation
• Debt Consolidation Loans
• Debt Consolidation Programs
• Student Loan Debt Consolidation
• Debt Consolidation Services – Why Should I Use One?
• Credit Card Debt Consolidation: Should I Consolidate My Credit Card Debt, or Just Go Bankrupt?
• Bad Credit & Debt Consolidation Loan: Can I Get a Debt Consolidation Loan Even If I Have Bad Credit?