One of the most important things that you can come to understand regarding your debt and the concept of debt consolidation is this: You absolutely cannot borrow your way out of debt, in order to solve all of your problems. More than 80 percent of all individuals that managed to bring their current accounts down to a 0 balance did so using a debt consolidation loan, however these individuals ended up owing even more money to the second lender because interest rates ended up hurting them worse than they imagined.
Most consumers are so excited about the prospect of paring down or completely paying off their debts that they gave very little consideration if any to what consequences would exist for the new loan, the debt consolidation loan. Many times these individuals end up owing as much as 50% more to the new lender than they owed for their original debt, which means that this really is not helping the problem in any way.
Unfortunately, this really is not even the worst of it. Countless people are taking debt consolidation loans out as a means of paying off their credit cards. They make the mistake of keeping these credit cards open without doing anything to change their spending habits. Because they do not do anything to fix their spending habits, they end up re-maxing these credit cards out so that they are now tackling credit card debt that is mounting quickly, and the high interest debt consolidation loan that they used to initially pay off the credit cards in the first place.
By the time something like this happens, the consumer has simply come full circle because they are now paying the debt consolidation loan payments and their credit card payments. It really cannot get worse than this, right? You have effectively doubled or tripled your debt in the process of trying to get out of debt, which is completely worthless.
The individuals who do find success with debt consolidation loans are those who have a stable plan in place before they ever actually take the loan out. Not only this, but they are also the individuals capable of following the plan to the letter, never straying no matter what it costs. If you want to succeed with debt consolidation, then you need to understand what it means to take out and pay off a debt consolidation loan. If you do not think that you have what it takes to pay off a loan designated for paying off your other debts, because most of these loans have higher fees and higher interest rates, then by all means find another method of paring down your debt.
Paying off debt is not easy, no matter which way you do it. Debt consolidation loans may be a solution for some, but they are not the answer for everyone because they create more debt rather than getting you out of debt completely. If you have the will power and the income to trade old debt for new debt, and can pay the new debt off before the interest rates get you, then debt consolidation may be the answer. Otherwise, choose a different solution to get you out of debt.
Photo Credit: 1
Related Posts- Restore Your FICO Score – Part Three In the previous parts of this article we discussed how FICO score can impact your financial status as well as the initial steps that you can take to begin restoring your FICO score. We covered handling collections first since they do have a big impact on your overall score, but......
- Sunday Money Madness Sunday Money Madness is your guide to the rest of the blogosphere on personal finance. The Digerati Life had a guest post from a HandyMan. Remodel Your Bathroom! Try 3 New Ideas To Freshen Up Your Bathroom is a excellent use of debt and they increase the value of your home.......
- Teach Your Kids about Money Management It is never too early to teach your children the basics when it comes to good money management. Teaching your children good habits is always wise, and money management is definitely a set of good habits that is better taught sooner instead of later. If you teach your children how......
- Sunday Money Madness: Money and Frugalness Hello and welcome to the Money and Frugalness edition of the Sunday Money Madness Roundup. Several categories are presented below to help break up the collection of weekend reading links. Pull up a seat, grab your coffee and peruse to your heart's content. Save Money | Frugal Tips: Digerati Life......
- RCDL Roundup - On the First Day of Xmas My True Love Gave to Me... lots of link love. Banking, Credit, and Debt Credit Karma asks Is a Credit Union Right For You? NCN posts Up, Up, And Away - Check Your Credit Card Statement! Cash Money Life blogs Two Financial Goals - Less Debt, More Income. Guest Post:......
- RL Overlooked Non Auto Funding Standing Orders A couple of weeks ago I tried a new standing order: RL Overlooked. The initial results are very much to my liking for example: debt relief for kids, Try this one more time, group leader, wantabe borrower , Wife wants to get back to work! Please help Re-list, and Financial Freedom......
- New Loan Funded — Blessings are coming — $10,000 at 26% — D Credit — DTI 84% A new loan funded (Blessings are coming – $10,000 at 26%). I participated via a manual bid the loan was Autofunding. The borrower had D credit and 84% DTI and is a homeowner. As a reminder my standing orders (and manual bids) only find loans with 0 current delinquencies, 10 or less delinquencies in......
- Analyze a Loan Using Crystal Report and Data Export Since starting this blog I have reviewed several loans. Since then I have developed a basic crystal report to analyze a loan (DTI, Amount, Credit, and Lender Rate) in the context of all loans on Prosper.com. The report takes as import the credit grade and the debt to income ratio. It then filters the loans......
- Another Default Debt Sale Prosper completed another debt sale... The details are not yet on the Default Sale History page; however, Prosper Shira did make an announcement on the forums... We completed a debt sale this week which will be evident in participating lender accounts over the next few business days. When a loan......
- New Loan Funded — payoff current loan and new invest on business — $25,000 at 29.00% — E Credit — DTI 37% My very first E credit loan... A new loan funded (payoff current loan and new invest on business — $25,000 at 29.00%). I participated via a manual bid (lured by the excellent extended credit and interest rate?). The borrow had E credit and 37% DTI. As a reminder my standing orders only......
- Card Guards Casino Collectibles
- Card Dealer Shoe Casino Collectibles
- Credit, Charge Cards Trading Cards Collectibles
- Card Shuffler Casino Collectibles
Categories:
Debt, Goal, Money, Personal Finance, bad debt, credit cards, good debt
Tags:
1 comment so far ↓
I believe that if someone actually collected the data, it would show that the vast majority of borrowers end up with a lower net worth as a result of a consolidation loan, because it frees up cash to take on more debt.
Leave a Comment