When is Debt Consolidation NOT a Good Idea?

Is a debt consolidation loan a good idea for your financial situation? Learn about debt consolidators and how they could help or hurt your credit with help from AmOne today.
debt consolidation loan denied
By David Kirsch
Updated on: November 7th, 2022

debt consolidation loan deniedDebt consolidation is an ideal option for some debtors but it is not necessarily the right option for everyone. When do you know if a debt consolidation loan is a good idea? Most of us understand that debt consolidation would be a bad idea if you know you are not going to be able to meet the terms of the program, which can last upwards of five years, or if you are simply going to continue to do the same things that got you into debt in the first place. However, there are other instances where using a debt consolidator may not be your best option including:

  • Student loans – student loans have a number of features that allow borrowers to extend the periods of time for repayment and in most cases, it is a good idea to pursue those avenues rather than making them part of a debt consolidator.
  • Putting your home at risk – with many debt consolidators, you are asked to put up some type of collateral. If that collateral is your home, you could wind up losing your home and still not have your debt paid off.
  • Sometimes lower is higher – debt consolidation loans often offer what appears to be a lower interest rate but after you are done paying all the associated fees, there is a chance you are actually paying more than you thought.
  • You’re concerned about your credit score – debt consolidators may have a negative impact on your credit score.

Is student loan consolidation a good idea?

In general, the interest payments on a student loan are significantly lower than if you were to take out another loan and try to pay that loan.  Since student loan companies are often more willing to work with debtors who are behind on payments, this option should always be explored before considering consolidating student loan debt.  Keep in mind, if you are paying a higher rate, you may want to consider a personal loan to pay off student loans.

Your home as collateral

Chances are if you have spoken to any debt consolidation lenders, one of the solutions that have been offered to you is to take out a debt consolidation loan and allow them to put a second mortgage on your home or refinance your home and take cash out. Neither of these options is typically a good idea.

First, if you are cash-out refinancing, you are going to be paying for your home longer, meaning you will probably wind up paying more interest than if you were able to secure a personal loan. Finally, if the debt consolidator gives you a loan and takes a second mortgage, they could force you into foreclosure if you fail to make any monthly payments. This means not only will you still have debts hanging over your head, you could potentially lose your home as well.

Using debt consolidation as an option

If none of the reasons above are a concern to you,  AmOne has debt consolidation options available to you.  Our debt consolidation loans are unsecured and we offer a whole range of products designed to help everyone, regardless of their personal credit history.

AmOne’s solutions, which have been developed during more than 15 years of experience, provide you with the peace of mind you need.  In addition, we have the skills and knowledge needed to help you with your debt consolidation needs.  We are a free matching service that allows borrowers to find the right lender to help their current situation. If you want more information about AmOne’s debt consolidators, fill out our online form today!