Debt consolidation loans can be a very good thing for some people but they can also be dangerous to some. Explain the benefits and dangers of a debt consolidation loan
What will be an ideal response?
Answer: If you are fortunate enough to have sufficient collateral and credit score to obtain a consolidation loan with an affordable APR and term, you can generally lower your monthly payments, especially when eliminating expensive credit card debt. You have to choose however, whether the fixed payment commitment of an installment loan and, possibly, higher finance charges over the length of the loan outweigh the financial pressures of the original debt. You also have to weigh your personal discipline and self control to not run up new debt on top of the consolidation loan. Some unfortunate people end up worse off with additional debt than when they started. If you use the equity in your home for collateral for the new loan, now you have put your home in financial jeopardy. The non-profit Credit Counselors recommend cutting up your credit cards to remove the temptation.
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