Many Virginia residents are watching their finances begin to spiral out of control, and if you are among them, you may be seeking a way to give yourself a fresh start. You may have heard that debt consolidation may help you lower monthly payments or streamline the process of paying off debts. However, there are some real and serious risks involved with the process.
What is debt consolidation, and why should you think twice before deciding to move forward with it?
Understanding debt consolidation
Per the Motley Fool, debt consolidation, in some cases, has the potential to make an already difficult financial situation much worse. The process involves rolling your high-interest payments into one simple monthly payment. On the surface, this might sound like a good idea and a solid way to simplify the payback process. However, you would be remiss not to consider the risks involved.
Assessing risk in debt consolidation
What are some of the risks associated with debt consolidation? Paying more in interest is a big one. While you may, at least at first, wind up paying less per month in interest, you may decide to lower your monthly payments by stretching out your payback period. This may lead you to pay much more in interest in the long run.
If you move forward with debt consolidation and do not change your spending habits, you may wind up digging yourself into even more debt. How? Debt consolidation pays off your existing credit cards, meaning you may use them again and potentially run up a high balance.
While these are some of the clear risks involved with debt consolidation, it is not an exhaustive summary of all reasons you may want to think twice about the process.