Family Finances: 'One Low Payment,' One Can of Worms
Consumers burdened with debt have probably heard the pitch more than once: By combining some or all of your debt into one big loan, you can lower your monthly payments and be on Easy Street within months.</br></br>Such appeals are rampant these days as rising interest rates squeeze borrowers' wallets. Unfortunately, the outcome is often less cheery than the advertisements imply. While consolidation can indeed lower your monthly payments, it's frequently a faster road to bankruptcy than to financial salvation, many debt specialists say.</br></br>The problem: Consolidation loans feed on the temptations that land many consumers in debt in the first place. You feel as if you can afford another shopping spree once monthly payments are lower.</br></br>Consumers with severe debt problems and poor credit also tend to get socked with extra fees and higher interest rates when they consolidate, making the loan even harder to pay off. "Unfortunately, it's much easier to get a consolidation loan with decent terms when you don't really need it," says Gerri Detweiler, a consumer debt specialist in Sarasota, Fla.</br></br>Also, cutting your monthly payments by stretching out the term of your loan means you will pay far more interest in total.