4 Dangers of Consolidating Small Loans
When people think of ways to get out of the small loans debt that they have cause, many will consider debt consolidation. While there are good things about this form of debt relief, there are a number of downsides to it. It is best to consider all of these before you jump to signing for a loan to consolidate your small loans.
You are Not Guaranteed a Consolidation Loan
The main problem with consolidation loans is that you will need to pass a credit check. You will have already damaged your rating with the small loans and you may struggle to have enough points to get your hands on one of these loans. This can be a stressful time if it is your only way out of the debts. However, that does not mean that you will never be able to get hold of one of these loans; you just need to make steps in improving your credit rating.
They Can Ruin Your Credit Rating
You will be asked for the reason why you want the personal loan, which is for debt consolidation of your small loans. The problem with this is that the reason will be added to your credit report. Other lenders will be able to see why you took out a long term loan and it can affect their thoughts of you as a borrower. You will be seen as someone who cannot handle their own debt and will be considered as an irresponsible and high risk person.
You will be best trying to clear the small loans yourself through a budgeting plan. However, this can be difficult and at least the consolidation of the debts will do less damage than having to file for bankruptcy; this is something that you will need to decide whether you will need to do and is often the swaying vote.
It Does Not Solve Your Debt
Just because you have a debt consolidation loan does not mean that you are out of debt. Many people will start spending their money again and will start taking out more small loans or using their credit cards again. This is something that you will need to be careful of; you are still in debt and you still owe someone money. You should always take any loans seriously and work to get out of the debts first; this will make you seem like a more sensible borrower.
You Cannot Predict the Future
The consolidation loans will be taken out for a number of years but you have no idea what will happen in the future. The benefit of the small loans was that you would be paying them back at the end of the month. If you were not able to do that, you may want to think again about debt consolidation.
When consolidating your small loans, you may want to think about Payment Protection Insurance, which will help you if you do end up being made redundant. However, this insurance does not protect you if you decide to quit your job and is another thing that you need to consider.