Many people may hear the commercials and see the advertisements about debt consolidation and think that it's the answer to all of their financial burdens. However, the truth of the matter is that many times these ads leave out critical information, like the fact that consolidation can actually increase the overall amount you owe. This means that a person who is already struggling with mounting debt will actually be responsible to pay back even more.
The issue is that while debt consolidation does take multiple payments and pushes them into one lower payment, often times the terms of the loan are extended, which means the consumer ends up paying more in interest over time.
Even the National Endowment for Financial Education recently came out and said, based on research, those who choose to have their debts restructured with a consolidation loan often end up with more debt than they originally started out with.
Additionally, while some of these ads offer lower interest rates, the truth is that many of those who are applying for a consolidation loan are not in the situation where they would even qualify for a lower interest rate loan.
Lastly, many ads also do not mention that some of these debt consolidation loans carry with them service and penalty fees. Some companies even go as far as to charge a fee for applying.
Luckily, there are multiple other ways to take care of debt aside from consolidation, and an attorney who focuses on debt relief would be a good place to start learning about what other options are available.
Source: MSN Money, "The pitfalls of debt consolidation loans," Jeanine Skowronski, Feb. 15, 2012