One danger of consolidation loans is that existing debts (for example, loan and credit card balances) often become more costly when consolidated. This is because the repayment period is increased and debt payments get stretched out over a longer period of time. While loan consolidation often results in smaller monthly payments than before, the total interest paid and debt repayment time are increased. Another pitfall is when people consolidate debt that previously charged no interest, such as medical bills, thereby incurring higher costs. A third danger occurs when people consolidate credit card debt, clear their balances, and begin charging again. This can result in financial distress resulting from overindebtedness.
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