Do you want to lower your multiple bills as well as save money at the same time? When you’re in a debt rut you may aim at organizing your debt and tips to lower your financial stress. If you think consolidation can solve your problem, then you’re mistaken. This is because most of the people aren’t aware of the drawback of different debt consolidation method. You can decide whether or not consolidation is a good option for you only after considering the drawbacks of its different types of consolidation loan. Here are some of the drawbacks of different types of debt consolidation loans:

Home Equity loans: Well, your home equity loan can be a good option for consolidating your debts as the interest rate is comparatively lower than other loan options. However, you need to have equity in your property before applying for the loan. Before you take out a home equity loan, make sure you’re aware of the cons of this type of loan.

Drawbacks of Home Equity loan

1. You’re putting your home on the line that can be extremely risky unless you’re confident that you can manage to prevent foreclosure activities on your home. So, you need to have immense trust that you can avoid overspending and faithfully pay off the home equity loan.2. If you opt for variable interest rate loan, then the interest rate can fluctuate and it can increase your cost of borrowing.
2. You can extend the life of the loan and it can cost you more in the course of time than if you’d simply paid off the high interest bills.

Borrow from your retirement fund: You can borrow from your retirement savings to consolidate your high interest bills. It’s possible to take out loan against your retirement savings like IRA or 401k Plan. But withdrawing fund from your retirement account before attaining the retirement age may lead to various problems like you need to pay taxes as well as penalty of 10%.

Drawbacks of borrowing from retirement fund

1. If you lose your job, then you’ll be required to pay back the retirement fund loan immediately.2. Pay taxes or penalty for early withdrawal of the retirement fund.
2. Using your retirement fund can be a wrong choice if you’re sure that you can arrange fund within 60 days.

Secured debt consolidation loan: Secured debt consolidation loan can be the best option when your credit score is low, especially for debt consolidation. The interest rate on this loan is low as you can secure your loan against collateral. If you’re unable to get a loan on favorable terms, then secured loan can be a good option.

Drawbacks of secured debt consolidation loan

You can risk your property when you secure it against the loan, especially if you default on your payment.2. It’s possible to lose your property if you default on your payment and further complicate your situation.

Balance transfer to a new credit card is a better option

If you have overwhelming high interest credit card debt and your credit report is blemished, then transferring balance to a new card can be a good option. You can get a introductory offer card with the help of a cosigner with good credit. Balance transfer is considered to be a great way for credit card debt consolidation. You can lower your monthly credit card payment when you transfer your high interest credit card debt into a new low interest rate card.Therefore, you’re required to consider the drawbacks of taking out a consolidation loan when you plan to consolidate your multiple bills into a single monthly payment.