Jeffrey M. Rosenblum, P.C.
A Fresh Start

Why consolidation loans can leave people in greater debt

When people are deep in debt, trying to juggle payments to a multitude of credit card companies and lenders each month in addition to paying their basic living expenses, the idea of a "consolidation loan" can be very attractive. Why not take out yet one more loan offered at a low-interest rate and use it to pay off all of your other bills?

The large print on the ads for these loans may look good. The interest rate advertised may be far lower than what you're paying on your other credit products. As one financial psychologist says, "Consolidating debt seems to create the psychological effect of making you feel like you've zeroed it out."

According to Experian, personal loans, which consumers often use to consolidate their debt, are the fastest-growing debt product. Last year, Americans had $291 billion in personal loan debt.

However, these loans often come with hidden fees and higher rates that eventually kick in. Too often, borrowers end up with more debt than they had before -- particularly if they don't change their spending and saving habits

Other types of loan products that people often use to try to get a handle on their debt can be just as ineffective -- and maybe even riskier These include cash-out mortgage refinancing, home equity loans and retirement loans.

Financial experts recommend finding ways to reduce your spending and boost your income. Even small changes can help you chip away at your debt.

If you have considerable credit card debt, it may be worthwhile to contact your credit card providers to find out if they offer programs that help consumers who are experiencing financial hardships. Many creditors would rather get something from borrowers -- even if it's only a fraction of what they owe -- than have to turn the account over to a collection agency and perhaps never collect anything.

If you're still not able to get out from a mountain of debt and it's impacting your ability to pay for necessities like housing, utilities and food, it may be worthwhile to consider bankruptcy. An experienced bankruptcy attorney can offer advice and guidance based on your specific situation.

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