Those dealing with financial issues can often be confused by conflicting advice from ads, banks, financial advisors and even loved ones. One of the most common debt management practices Connecticut residents use to deal with credit cards and other unsecured balances is debt consolidation. While this might seem like an easy win on the surface, it is important to carefully consider the pros and cons of any debt management tactic.
Debt consolidation is the practice of taking out a large, lower-interest loan and using that money to pay off higher-interest accounts. For example, someone with debt on two credit cards with 20% interest rates can take out a 6% loan and use that to pay down the credit cards. Then, they would pay off the lower interest loan over time, thereby owing less interest.
There are a few reasons to be wary of this debt management tactic. The first is money management. If people’s consumer behaviours get the better of them once they have access to more credit, they will end up driving up more debt. Additionally, these loans may have fine print attached that could mean the interest rate goes up over time.
When deciding whether to consolidate debt, consumers should be wary of lenders who give credit too easily, as their terms and conditions could be predatory. Debt management is an issue that many in Connecticut face. While saving money and working with lenders can sometimes get people out of debt, others may be unable to do so. In that case, speaking with a bankruptcy lawyer is a good idea.
Source: CNN, “Should I take out a loan to pay my debts?“, Anna Bahney, April 12, 2018