Hidden Risks of Government Debt Consolidation Loans

Hidden Risks of Government Debt Consolidation Loans

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by Dean Byler

There are some people who believe that you should get a government debt consolidation loan to pay off multiple debts. This is a type of loan available through different government programs where you can pay off multiple debts by consolidating them into a single loan instead of paying off each one individually. The downside is, depending on your specific situation, this option might not be available to you.

One huge advantage of a government debt consolidation loan over other types of consolidation loans is the absence of a hefty initiation fee. As small as it sounds, this can sometimes be a surprisingly huge chunk of change. Many times, student loans can qualify for government debt consolidation loans, but personal credit card debt is not usually eligible. More often than not, government debt consolidation loans target small businesses and corporations rather than individuals.

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If you have personal credit card debt and are looking for the best way to pay them off, you should do your research to find the options that best fit your situation. A consolidation loan is often a desirable option since they can reduce the amount of your monthly payment as well as the amount of interest you will have to pay back.

If you have student loans, a government debt consolidation loan can usually be found without having to pay an initiation fee. It’s important to look over the terms of the loan carefully. Each lender will typically have their own unique terms and requirements.

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Consolidation loans are used to group multiple loans with higher interest rates together and to pay them off with a single loan which has a lower interest rate. The new monthly payment is lower which helps to reduce the financial stress. This also saves you a significant amount of money over the course of paying back the debt.

The potential downside of a government debt consolidation loan is the possibility of using the money saved to accumulate even more debt. Many times, people will continue their undisciplined spending habits and use the money they saved to buy more stuff and eventually get into even more debt. They don’t know how to manage their money and just keep spiraling out of control.

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Consolidation loans are intended to pay off multiple debts. If more debt is accumulated with the savings from consolidating their loans, people end up worse off than they started. They enter a no-win proposition that will end in financial disaster.

One of the best options for dealing with personal debt is to talk with a debt counselor. Learning ways to manage your finances better will serve you in the long run and prevent you from falling into the same trap over and over again. While debt consolidation can provide short term relief, it is not a long term answer to your financial problems.

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