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
Originally posted 2008-12-11 05:07:20. Republished by Blog Post Promoter
Related Posts -
These Things are Hurting your Credit Score A person's credit score has become very important in this day and age. Your score is what creditors and lenders look at to quickly decide if you are a good or bad risk to lend credit to. It is important that you learn what types of actions hurt your score...... -
How to Negotiate with Credit Card Companies to Reduce Your Debt Today's article is a guest post by Andrew Wang... With consumers facing tough times in the wake of the financial crisis of 2008, it's a good opportunity to discuss the possibility of getting your credit card debt sorted. Most people assume credit card companies care only about the profits they...... -
Debt Repayment Methods Paying back all of the money that you owe to your credit card debt is not nearly as easy as it was for you to go into credit card debt in the first place. Still, it can be done. When you put together a good working plan coupled with discipline...... -
The Many Flavors of Loans Money can be lent to those in need, at a reasonable rate, from a pool of money that comes from investors and savers. When the lending institution provides money for consumers to borrow, either secured or unsecured, the practice is known as providing a consumer loan. These loans do not...... -
How to Pay Off Your Card Credit cards create for their users a cycle which is vicious: charging for items when you do not have the money, and then finding it very hard to make the payments due to high interest. The average, in the middle, debt that is held by an American is over eight......
Related Websites -
Should You Consolidate Your Student Loans? Most college kids will tell you that all they remember about signing up for their student loans is that they were happy they got money for college. Many will also tell you they didn't put much thought into having to pay that money back. As another graduation season is upon...... -
Reader Question: What Damages Your Credit Score The Most? Reader Phillip writes: "In this economy, I am concerned about getting a loan for a car and a house because of tighter lending restrictions being put out by lenders. If I am trying to build up my credit score, what kinds of things should I be doing to avoid damaging...... -
Recession’s Silver Lining: Consumer Debt On The Decline Credit Karma recently released its U.S. Credit Score Climate Report reflecting data for July 2009. It revealed a few interesting trends, the most interesting being the continued decline of consumer debt for those currently holding a credit card. This means that, overall, Americans are paying off more than we are......
-
Using Home Improvement Centers Effectively Home improvement centers are all over the place these days. Even if you don’t contract them to do any work at your house, chances are very good that you are going to end up purchasing at least some of your raw materials from them. Depending on where in the country...... -
How I Got Out of Credit Card Debt I put myself through four years of college, on a combination of student loans, personal loans, income from my full time job and... credit cards. When my loans didn't quite add up to cover the tuition and books, my credit cards had to pick up the slack. My job was......
Categories:
Debt, Goal, Money, Personal Finance, bad debt, credit cards, good debt
Tags:
2 comments ↓
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.
All great points in this post. Well done with good insights.
When I looked at the picture and the heading, my gut reaction was simply: “The guy on the right accepting the money has an expectation of success, and is willing to risk enslavement by the guy on the left who is lending the money. The lender is willing to take the risk of a loss because of an expectation of successful enslavement of the other. And, one of them will have their expectations met.”
The main point you make is invaluable – if you haven’t decided to “quit your ways” that got you into trouble in the first place, then you simply can’t borrow your way out at any price.
Clair
Leave a Comment