The Truth About Debt Consolidation Loans

Although Aegis itself does not provide debt consolidation loans, they can help a very small group of people. In fact, consumers who may have considerable debt but not enduring financial hardship can often see benefits from them. But, because the collateral required for these loans is often 200-500% of the principal needed, the person should at least own one home.

The fact is, if you are not enduring and financial hardship, a debt consolidation loan at a low interest rate could save you a significant amount of money over time. Even if there is no significant change in the interest rate, the ease of making one payment each month may be reason enough to obtain a debt consolidation loan.

The key disadvantage is that these loans are generally "secured", meaning that if you default on them, your home could possibly be seized by creditors.

This is why we NEVER recommend these loans to those families who find themselves encountering real financial difficulty.

Most clients Aegis take on are enduring financial difficulties - sometimes compounded by large debt consolidation loans - which can make the process quite complex.

So while a consolidation loan may sound appealing, the truth is, it rarely resolves a debtor's financial hardship. In fact, it may compound it. The reality is, unless you are extremely financially sound, have excellent credit and/or has very good collateral, it is difficult to find a debt consolidation loan with an excellent rate - despite what television commercials claim.

"Rates Not Often As Advertised"
Generally, lenders that have lower restrictions charge high interest rates - often as much as 22% or higher. Even with excellent credit and very good collateral, the interest rate may be higher, or very near your current average interest rate of the debts being consolidated.

Borrowing From Peter To Pay Paul
The key point of debt consolidation loans is that they simply "transfer" your debt to a different lender. You are, in effect, borrowing from Peter to pay Paul.

The Advantages
If, however, you are able to obtain a debt consolidation loan at an overall lower interest rate, you may be in luck. But if you are having financial difficulties, you must understand that this is a poor vehicle.

Credit cards are unsecured debt, which means you can default on them without considerable financial penalty. Instead, the companies merely apply small penalties and interest charges. However, debt consolidation loans are secured, so defaulting may mean your house or car may be seized. Certainly a worse situation than what you started with.

The key aspect to understand here is that while "unsecured" creditors can take legal action, they are typically slower to do so-and more willing to negotiate a settlement.

See Debt Consolidation Loans Part 2 - The Double Edged Sword.

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