Debt Consolidation
Debt consolidation loans combine all current debts into one solid loan, making it possible for an individual to pay off other creditors, but still owe the total balance to a new creditor. These may sound like wonderful solutions to solving ones financial debts; however, the truth of the matter is that the consumer still owes the debts. While debt consolidation companies make it seem like a quick “band aid” solution, it often times costs more money to the debtor.
One of the biggest problems with debt consolidation loans is the appearance of lower payments. While the monthly payment may be lower, debt consolidation companies have simply expanded the term of the loan. Yes, smaller payments are required each month, but in the end, individuals pay much more for the same debts.
Individuals need to keep in mind that debt consolidation companies are in the industry to make money. As a result, using their services requires some capital. This capital is “forked” out by the debtor in the extended months.
If an individual seeks to consolidate all debts into one loan, he would be wiser to take out a lower interest, personal loan. This way there are no surprises and he can pay off the loan in the same amount of time. It’s important to note, though, that all of these loans are hard to come by. Usually, by this time, individuals have bad marks on their credit and too many open lines-of-credit. This makes it much more difficult to receive help from lending institutions.
Individuals often transfer credit card balances to new cards, which claim to have lower interest rates. Have you actually ever read any of those credit card ads in the mail, though? If you read the small print, you will see that the 0% interest rate applies only to the first month of the transfer balance, then, the rate jumps to anywhere between 14 and 20 something percent (typically the mid 20’s). This is an outrageous rate! Individuals would be better off to continue making smaller payments on the lower interest cards they already possess.
One of the ways to refrain from giving into debt consolidation companies is by communicating with creditors. Yes, it may give one a lesson in humility and it may even cause some anxiety. However, the truth is that creditors are more willing to work with debtors, who respond and are trying to pay off debts. Often times, if individuals will be honest and upfront, they are more willing to make arrangements of sorts—whether that be extending time, decreasing debt principles, or lowering interest rates. Why pay for an agency to make these arrangements for you at a high cost, when you can do it yourself?
Moreover, individuals, would be wise to gain some credit counseling / financial counseling to formulate a plan. From there, move forward with the plan and keep close tabs on financial information.
The way individuals are going to get out of debt is when they decide that they are no longer going to put things on credit and stick to cash. Debts, typically, take long periods of time to incur. Individuals need to be patient, as getting out of debt will probably take a length of time as well. Getting out of debt may require sacrifice by working extra jobs. Further, when individuals begin to think about their future and plan accordingly by placing money in savings, transformation will take place and individuals will make the necessary steps to stop increasing debt.
Filed under: Investment Traders
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