How Does Debt Consolidation Work in Texas?

Debt consolidation in Texas is no different than it is in other states, and consumers considering consolidation should weigh multiple factors before choosing to consolidate their debts with a consolidation loan. While debt consolidation is a wise choice for some consumers, it can lead to significant financial hardship if you are not a responsible borrower and cannot manage your debt.

Debt Consolidation

Consolidating debts is a simple process in which you get a new loan from a lender and use the money to pay off loans you owe to other lenders. Consolidation comes in a variety of forms, such as credit card transfers and home equity loans, but the basics remain the same. When you consolidate debts, you often have lower monthly payments even though you still owe the same amount of money.

Terms

The key to evaluating a debt consolidation loan, according to the Texas Attorney General's Office, is to look at the both the amount of interest the lender charges and the term of the loan, meaning the amount of time it will take to pay off the loan. While a lower monthly payment seems enticing at first, you usually end up paying a lot more in the long run because the loan has a longer term, thus meaning you pay more in interest.

Effects On Finances

While you may think that debt consolidation will help you because you have lower monthly payments and can afford to take on more loans, this is the wrong attitude to take. Debt consolidation does nothing to lower the amount of money you owe, and if you use the lower monthly payments as an excuse to take on more debt, you'll be worse off than before.

Warning

Look for red flags that might indicate the debt consolidation offer is unscrupulous or problematic, such as promises that your creditors will forgive your debts outright, that you'll be able to get out from large debts with only minimum payments or promises that everyone gets approved for the loan. Lenders are not allowed to charge you a fee in advance of getting your loan, according to the Texas Attorney General's Office.