Consolidating debt bad idea
These loans are usually offered by financial institutions, such as banks and credit unions; there are also specialized debt-consolidation service companies.
There are two broad types of debt consolidation loans: secured and unsecured.
Individuals usually work with a debt-relief organization or credit-counseling service.
These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors.) Freeman says that debt consolidation loans are most helpful for those who have multiple debts, owe ,000 or more, are receiving frequent calls or letters from collection agencies, have accounts with high interest rates or monthly payments, are having difficulty making payments or are unable to negotiate lower interest rates on loans.
(In circumstances where you need actual debt relief or don't qualify for loans, it may be best to look into a debt settlement rather than, or in conjunction with, a debt consolidation.
Debt settlement aims to reduce your obligations rather than just reducing the number of creditors.
Debt consolidation loan interest payments are most often tax deductible when home equity is involved.
More traditional, unsecured debt consolidation loans, which are not backed by assets, can be more difficult to obtain.
However, there are specific instruments called debt consolidation loans, offered by creditors as part of a plan to borrowers who have difficulty managing the number or size of their outstanding debts.
Creditors are willing to do this for several reasons – one of them being that it maximizes the likelihood of collecting from a debtor.
Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.
If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.