As a continuation of When to Beware of Debt Consolidation Loans (Part 1), here is some additional information regarding what borrowers should be on the lookout for before they move forward with debt consolidation loans. Some of the potential risks and dangers associated with debt consolidation loans include that these loans:
- Can be associated with expensive service fees – As with any service, it’s crucial to look at the specific service fees and various costs in the fine print in order to have a better idea of what the service provider will really be charging. When it comes to debt consolidation loans, many companies can levy heft fees in various ways – including through up-front fees, not-so-obvious monthly fees or in added percentages to interest rates. In some cases, the costs of such fees (when added up over the course of the loan) can end up being extremely expensive, potentially digging borrowers into a deeper financial hole.
- May have excessively high interest rates – Despite the fact that debt consolidation loans may tempt borrowers with a single, lower monthly payment on all of their debts, some of these loans may have high interest rates that end up costing borrowers far more in the long run. As a result, it’s important that borrowers do the math to figure out how much they will end up paying in interest alone over the course of the debt consolidation loans. In the event that the interest associated with these loans will ultimately cost borrowers hundreds or thousands of dollars, it’s often a better idea for borrowers, when possible, to use the money they would have paid in interest to focus on paying off one debt at a time.
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