This list exposes the disadvantages of debt consolidation loans and why they fail:
- Consolidation loans are a bandage. This type of loan does not solve long term financial problems.
- The most deadly form of a debt consolidation loan is a private second mortgage. The interest rates and fees often exceed the current cost of servicing existing debts. In most situations they make matters worse.
- The second most deadly form of a debt consolidation loan is the one where the home is financed and the amortization is extended to thirty-five years or longer. Monthly payments are lower, but more interest is paid over the long-term.
- Debt consolidation loans make it easier to accumulate more debt. With more money left over at the end of the month, many people start using their credit cards again and continue with poor spending habits
- Debt consolidation loans convert unsecured debt into secured long-term debt which disguises the cause of financial problems.
- Most people, who take these types of loans, end up owing more money over time and end up in a negative equity position with their home. That is especially true if a down turn in the economy occurs and property values drop.
- Debt consolidation costs more long term, even though the interest rates are lower. If the loan is taken over a thirty-five year period, one may end up spending more money than if each individual loan had been kept in place.
- Debt consolidation loans take longer to pay off.