Consolidation loans are designed to help people pay off bills and pay down debt. Banks, credit unions, finance companies and other lenders grant consolidation loans so that people can pay off a car, credit cards, medical expenses, student loans or whatever outstanding debt a consumer owes.
Consolidation loans can be beneficial. The interest fees for a consolidation loan are often less than the cumulated finance charges of other debts. When people consolidate their bills through a loan, they also have only one loan payment to make each month rather than numerous smaller payments to various creditors.
A consolidation loan can be a smart idea, but once a consumer has consolidated his or her debt through a consolidation loan, it is imperative that they not take on any more debt.
What tends to happen is that people pay off many of their bills, so they're no longer receiving large monthly bills from retailers and major credit card companies. They begin to feel like they don't owe as much money as they did before, after all, the balance due on all those bills is zero! Many people start to use one or two credit cards, and before long owe several hundred dollars in addition to their consolidation loan.
Consolidation loans can certainly be beneficial. The key to success with a consolidation loan is discipline. Once someone has consolidated their debts, they must maintain the discipline it takes to stop spending with credit. If they can't, they will often end up in deeper debt than before.
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