By Jeanine Skowronski, TheStreet.com


New research from the National Endowment for Financial Education finds that these loans, which allow a cash-strapped consumer to restructure multiple debts for a low monthly payment, leave borrowers with a greater overall debt burden by stretching the payments out over longer periods.

For example, NEFE says, a five-year loan for $20,000 at a 10% interest rate would cost about $425 a month and total interest payments of $5,496 for the life of the loan. Extending the debt to 15 years in a consolidation loan would knock down the monthly payment to $215, but it would increase the total interest payments to $18,685 – a fact that is conveniently left out of most debt consolidation advertisements.

"Typical ads tell consumers that the monthly payments will be low and that their debt will be reduced," researcher Paul Bloom said in an official statement. "And although the ads sometimes tout lower interest rates, most people who need such loans don't qualify for the lower interest rate loans."

NEFE says the loans also sometimes carry hidden fees (for items like credit checks or attorney services) and penalties (for late payments), which many ads do not disclose either. Some companies even charge a fee just for applying for such a loan.

The discrepancies, often masked by advertising and labels such as "credit counselor," highlight the need for debt-ridden Americans to shop around before accepting a debt consolidation loan offer.

For additional steps you can take to ease your money woes, check out MainStreet's roundup on eight steps to real debt consolidation.

More from TheStreet.com


Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Add a Comment

*0 / 3000 Character Maximum

14 Comments

Filter by:
n1yearocrapleft

THANK GOD THEIRS ONLY 9 MONTHS OF *HELL* LEFT N THIS *BLACK CLOUD* OVER AMERICA WILL FINALLY BE VAPORIZED. ! !

February 14 2012 at 9:44 AM Report abuse +1 rate up rate down Reply
Sky Fairlane

Regarding unemployment and debt:

If you’re unemployed or under employed, chances are you are not going to be able to pay your way. People are

getting arrested for their unpaid debts in six states. And collection agencies are behind it. A petition has been

started on moveon.org to prevent the return of debtor’s prison in the USA. Once enough signatures are obtained,

it will go to the US Congress and President Obama.

To sign the petition go to

http://signon.org/sign/outlaw-the-return-of

February 12 2012 at 2:28 PM Report abuse rate up rate down Reply
dollibug

SUCH AS THIS SHOULD BE AGAINST THE LAW.....THERE IS CORRUPTION AND COVER UP EVERYWHERE....and this is just another FORM OF IT....http://ireport.cnn.com/docs/DOC-736024....this is another form of CORRUPTION AND COVER UP IN THE COURT ROOMS.....and it will SHOCK YOU.....YOU MIGHT BE NEXT....

February 11 2012 at 1:18 PM Report abuse +1 rate up rate down Reply
Marlene

Hey I say whatever you have to do DO IT!

February 11 2012 at 11:51 AM Report abuse rate up rate down Reply
cimontesjr

Precisely arenadood.....they decrease their debt burden in the shortrun....and triple it in the longrun.

February 11 2012 at 10:54 AM Report abuse +1 rate up rate down Reply
arenadood

One problem I have seen is after people get these loans they just build up more debt and get deeper in the hole.

February 11 2012 at 10:33 AM Report abuse +3 rate up rate down Reply
ccdae5

You know people sign up for this stuff for two reasons. 1. They are desperate and don't have any other choice than bankruptcy, or 2. They are too dumb to understand what they are doing and should go back to school.

February 11 2012 at 8:56 AM Report abuse +1 rate up rate down Reply
2 replies to ccdae5's comment
cpo1514

back to school??/ More pass / fail, feel good classes??/ Too dumb?... these are the folks that voted for The Occupant of the White House....

February 12 2012 at 12:00 PM Report abuse +1 rate up rate down Reply
vondeck

Bankruptcy isn't so bad.

February 13 2012 at 10:06 AM Report abuse rate up rate down Reply
Sky Fairlane

Regarding unpaid debts, a petition has been started on moveon.org to prevent the return of debtor’s prison in the USA. Once enough signatures are obtained, it will go to the US Congress and President Obama.

To sign the petition go to:

signon.org/sign/outlaw-the-return-of

February 10 2012 at 9:40 PM Report abuse rate up rate down Reply
cpo1514

Huffy... a little more research please.... Is this consolidation modeled after the Obama Financial model.... More debt and higher interest rates in the future..... thught so....

February 10 2012 at 12:03 PM Report abuse +4 rate up rate down Reply
1 reply to cpo1514's comment
ccdae5

Yup, sounds a lot like the federal government.

February 11 2012 at 8:57 AM Report abuse +1 rate up rate down Reply
evd10

"New research from the National Endowment for Financial Education finds that these loans, which allow a cash-strapped consumer to restructure multiple debts for a low monthly payment, leave borrowers with a greater overall debt burden by stretching the payments out over longer periods."...Until I read this article I would have never known this.

February 10 2012 at 11:31 AM Report abuse +4 rate up rate down Reply
1 reply to evd10's comment
aeheywood

Yes, it's very simple logic.

But not if you can't add 2 and 2 in the first place.......

February 11 2012 at 4:31 PM Report abuse +1 rate up rate down Reply