Be wary when considering consolidation to achieve debt relief

There are still many people in Illinois that are struggling to recover from the impact of the recession. Those same people may be looking for debt relief options such as consolidation. There are risks involved in using debt consolidation, whether it is in the form of a home equity loan or consolidating all credit card debt onto one - often new - credit card.

Many people like to use home equity loans to consolidate their debt since interest rates may be lower, and the interest may be tax deductible. However, in today's real estate market, having equity in a home is not as prevalent as it used to be before the housing market collapsed. Additionally, when a consumer takes out a home equity loan, all of their debt is now considered secured by the home. Debts that would have otherwise been dischargeable in a bankruptcy are now secured.

Combining credit card debt onto one card also has its risks. It may seem attractive to put all credit card debt onto a card that boasts zero interest for a period of time, but many credit card companies charge a "balance transfer fee" that is usually a percentage of the amount being transferred to the card. There is an additional risk that consumers may reuse those cards that now have a zero balance. The only way to be sure not to use those cards again is to close the accounts.

Debt consolidation may be a good idea, but if not executed correctly, it can be a financial disaster. Of course, a consumer would need to qualify to consolidate their debts first. The economy has left many in Illinois unable to acquire new credit. For those consumers that need other debt relief choices, filing for bankruptcy may provide the fresh start they desire.

Source: The Daily Courier, "PRACTICAL SAVER: Avoid risk when consolidating your debt," Kara Rozendaal, Feb. 13, 2013

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