What Are the Biggest Risks of Debt Consolidation?

During times of need and outstanding debt accumulation, many people look to debt consolidation as a viable solution to combine all balances into a loan. By combining debt, you can pay balances off faster, mitigating consequences like bankruptcy.

While it all seems straightforward, it helps to know other crucial elements about debt consolidation to determine whether the option is suitable for you. So, what are the biggest risks of debt consolidation? Continue reading to learn more!


Debt consolidation loans typically include origination fees of up to 8 percent of the borrowed amount. An origination fee is an upfront charge from a lending institution when processing a loan application. Some lenders like to view this practice as compensation for executing a loan.

Also, if you choose to consolidate your debt with a transfer credit card, you may notice surcharges of anywhere between 3 to 5 percent of each transfer.

Collateral Loss

Consolidating with a secured loan has its risks. With secured loans, the borrower puts up assets as collateral to ensure repayment; if they were to miss multiple payments, the lender could accept these assets as an alternative.

You’ll never want to be in a position where you can’t repay a loan from a lender. Once they take possession of the collateral, you may never see it again.

Hard Inquiries

Once you decide to move forward with debt consolidation, you can expect to receive a hard inquiry on your credit report. Your score may drop 5 to 10 points as it would when applying for other forms of credit.

Fortunately, you can improve your score over time as you repay the loan and get rid of debt sooner.

The biggest risks of debt consolidation may include fees, possible credit score decline, or losing collateral. However, you can prevent most of the dangers by doing business with an institution you can trust.

Superior Financial Services offers loans to pay off debt with better repayment terms than the rest. We consider applications from borrowers with below-average credit so they can see their way out of debt and start building toward improving their financial health.

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