The main issue with debt consolidation is that is a band aid
covering up the main problem. You still owe all of the money and you still have
all of the poor behavior that got you into the situation in the first place.
Building more debt by taking out loans in order to get out of old debt just
leading to a harder time. To truly get out of debt it takes hard work and time.
It is better to think that debt is a habit that needs to be
corrected not a problem that needs solved. Save more and spend less is a much
easier way to get out of your debt, certainly much better than debt
consolidation. Simply because debt consolidation doesn’t work.
Facts About Debt Consolidation
Turns out just about every debt consolidation firm is out
there in order to make money off of your debt. 8 times out of 10 after someone
consolidates a debt, it comes back. To be fair it isn’t a company preying on
you, it is most likely your poor habits that are preventing you from escaping
this pit of debt. If you don’t have an emergency fund to pay for those
unexpected things you will most likely end up in a deeper hole.
The ideas of low interest rates and smaller payments leads one
to think that debt consolidation might be a good option. This is usually
due to the fact not that you are saving money but that the amount of time that
you have to pay it has been extended. This is how those debt consolidation
companies make their money, the longer you are in debt the more you are paying
the guy who loaned you that money.
Debt Consolidation Sample
Let’s say you have $30,000 in unsecured debt with multiple
loans one of which is a 2 year loan that is $10,000 at a twelve percent
interest rate and a 4 year loan that is $20,000 at ten percent interest.
Monthly payments for each one are $517 and $583 for each of the loans coming
out to a total of $1,100 that you are paying each month. This is where a debt
consolidation company likes to shine a false hope on to your situation. They
might tell you that they will lower your payments down to $640 a month with an
interest rate of nine percent by combining both of these loans into one larger
loan. What an amazing deal this may seem to be?
Except this is over a term of 6 years in order to pay off the
total sum of your debt. The only problem with this is that you end up spending
nearly $6,000 more than your original loan. They are not there to make things
perfect for you, they are there in order to make dollars and cents off of you.
The Best Way to Get Out of Debt
What you really need to be paying attention to here is the way
you handle your money. Sitting down and creating a budget for yourself will get
you a whole lot further than getting a lower interest rate. Stay with what you
commit to and do the little things in order to save your money. If you make
$1,000 a week do not spend more than $1,000 a week, otherwise you don’t make
any money. It is pretty simple. Stay away from debt consolidation!
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