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However, with debt consolidation comes serious risks.
It Doesnt Solve Financial Habits
Debt consolidation itself is a band-aid over the underlying cause of overspending.
If you got into debt because of overspending or poorbudgeting, consolidating wont solve your problems.
After all is said and done, you could be right back where you started, or worse.
In addition, many people feel relief after consolidating debts, but that sense of security can be deceptive.
Consolidating can free up your credit cards, making it tempting to start spending again.
This could cause you to pay more in total interest over time.
Too many of us get caught in the extended debt repayment trap, thinking lower payments amount to savings.
That asset will be at risk if you dont pay back those loans.
Using a secured loan to consolidate unsecured debts like credit cards is especially risky.
For instance, you could have balance transfer fees, loan origination fees or face penalties for early repayment.
Potential Impact on Credit Score
Consolidation of debt can be good or bad for your credit score.
Closing accounts diminishes your amount of available credit, which can be bad for your credit utilization ratio.
Debt Consolidation: Is It a Solution or a Financial Risk?
Afterward, you could find your decision that much easier to make.
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