It's a scene that's repeated day after day: A person goes to their mailbox hoping to get something good. Instead, they get nothing but bills and junk mail. Does this sound at all like you? If so, you know you are in real trouble when you start looking forward to the junk mail. However, every now and then, something catches your eye...a mailing with offers for loans for debt consolidation. Being curious, you open the letter and wonder if it could possibly be as good as it sounds. After all, you could get one loan and pay everybody off, and maybe save a little money every month on top of that. Consolidation loans can seem like a real lifesaver, but are they?

Here's the catch, you can only get the best rates on a debt consolidation loan if you don't really need it. That's because the less risk you are to a lender, the lower your interest rates will be; and the less you owe, the lower risk you are. In short, the more you owe, the more you pay.

Aha! But you owe a lot, and you have an offer that has a very low monthly payment? At first glance, such an offer may look really good, but dig deeper and you may find you will end up paying more than double what you currently owe. How is this possible? Easy, some loans for debt consolidation take advantage of your situation by giving you a higher interest rate, but low payments that last several years longer. So, while you may pay less per month out of pocket, by the time you're done repaying the loan, you will be in worse shape than when you started.

Let's take a look at a quick example"

You have unpaid debt totaling $11,000 (to several creditors) with an average interest rate of 14%, with 5 years remaining to pay it off. Such a monthly payment would work out to approximately $260. Now, let's say you get an offer to get a lump sum of $11,000 so you can pay everybody back at once, and all you have to pay is $190 per month. Heck! You'll save $70 every month, not bad, right?

Hold on. Reading the fine print you see it's at a rate of 17% instead of the 14% you're paying now. Still, that extra $70 would really come in handy, and it's only an extra 3 percentage points. Turning to the fine print again, you find out why. Instead of making payments of $260 for 5 years, you will be making payments of $190 for 10 years!

Let's compare the final cost of both loan arrangements.

The 5 year plan will cost you $15,600

The 10 year plan will cost you $22,800

To put it another way, that $70 monthly "savings" will actually cost you $7,200. That means you will actually be losing $60 every month for that 10 years. Any savings on such a plan is only an illusion, and an expensive one at that.

To be fair, not all loans for debt consolidation are structured this way. The only way to know for sure is to read the fine print and make an honest comparison. As long as you take the time to fairly compare your options, you will be able to choose what's best for you.