Some interesting new research from the National Endowment for Financial Education has surfaced regarding debt consolidation loans. Research highlights that debt restructuring often leaves a consumer with a greater overall debt burden to the length of time and interest rate of the new loan.
Highlights from the new research:
- NEFE says, a five-year loan for $20,000 at a 10% interest rate would cost about $425 a month and total interest payments of $5,496 for the life of the loan. Extending the debt to 15 years in a consolidation loan would knock down the monthly payment to $215, but it would increase the total interest payments to $18,685 b a fact that is conveniently left out of most debt consolidation advertisements.
- “Typical ads tell consumers that the monthly payments will be low and that their debt will be reduced, and although the ads sometimes tout lower interest rates, most people who need such loans don’t qualify for the lower interest rate loans.”
- NEFE says the loans also sometimes carry hidden fees (for items like credit checks or attorney services) and penalties (for late payments), which many ads do not disclose either. Some companies even charge a fee just for applying for such a loan.
- The discrepancies, often masked by advertising and labels such as “credit counselor,” highlight the need for debt-ridden Americans to shop around before accepting a debt consolidation loan offer.
Debt consolidation can be a slippery slope and in many cases, a fresh start through Bankruptcy is a much better option. If you live in Kansas or Missouri and are interested in the options available to you, pick up the phone and call Neil Sader at (816) 281-6349 today for a free consultation.