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What's The Cost?
How much are you prepared to pay in interest?

Consolidation

What's wrong with it?

On face value, nothing at all. As this article points out, consolidation is often the cheapest route. However, there are a few points which need to be made:

If you're considering consolidating your debts into your mortgage, or into another loan secured on your home, you need to be aware that in sometimes, changing unsecured debt (such as credit card debt) into secured debt (presumably secured on your home) can cause more problems down the line if you default on the payments. It's easier for creditors to force the sale of your home if the debt is secure on it.

If you decide to consolidate, then try not to be tempted to decrease the monthly payment by increasing the term of the loan. Obviously cash flow is important, but don't fool yourself into thinking you're paying less just because the interest rate is lower. Remember to look at the TAR (total amount repayable), not just the interest rate (I'd much rather have a loan over 2 years at 10%, than 10 years at 5%!).

Consolidation (whether into secured or unsecured debt) is never a good idea unless you've come to terms with your spending. As this poll shows, 85% off people on a debt forum found that they ran up further debts after consolidation (of course, it's a debt forum, so the results may not be indicative of the general population, however it's still worth mentioning).


Debt consolidation? No thanks! Become debt free by managing your own finances!
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