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 Old Post Promoter
Related Posts -
Creating a Household Budget With economic times being what they are, even people who have been more casual about their spending are now creating a household budget. A budget should not be seen as a restriction, telling you what you can't spend, but rather as an empowering tool, letting you know what you can...... -
4 Easy Ways to Raise Your Credit Score For many Americans, dealing with a low credit score can be incredibly frustrating. It’s tough to get any loans and in some cases, it may even affect your prospects for employment. If you’re sick of dealing with a low score, it’s time to starting putting into motion some techniques that...... -
Debt Consolidation Credit cards are financial devices which their users end up digging themselves too deep with. Pay it later is too easy with a credit card. Too many users will buy stuff that is outside of their means and as such will get into trouble. Compound this with numerous cards, and...... -
3 Credit Lessons from the Economic Crisis Governments are meant to lead by example, regardless of whether they intend to or not. Sometimes they give us examples of what not to do as well as examples of what to do. Wall Street executives also happen to be unwitting role models to people all over the world. Still,...... -
How to Undo The Results of Financial Trauma Whether you’ve lost your home or your job, or your money management skills over the years have left you severely in the hole, it is never to early to start turning things around. You can bounce back from financial trauma, but it will take some effort and dedication on your......
Related Websites - Baseball Cards Sports Memorabilia -> Autographs, Original -> Baseball-MLB-> Trading Cards Baseball cards have been around for just about as long as the sport has and many of them have turned into very valuable collector items. Whether you are interested in collecting baseball cards from a fan perspective, or you are more......
- New Peer-to-peer Lender for Student Loans Techcrunch has an article today about a new peer-to-peer lender for student loans called Fynanz. According to the lender FAQ, they will guarantee 50-100% of the loan if the borrower defaults. There are a few reasons why I have my doubts that Fynanz will work: Interest rates on student loans......
-
Tustin Ranch Golf Club, Tustin, CA Tustin Ranch Golf Club is located in: Tustin, CA Phone: 714/730-1611 Website: http://www.tustinranchgolf.com/ Course History: This course was designed by Ted Robinson and you'll easily feel as though you've been transported into paradise the minute you arrive. By far, one of the most visually stunning golf courses we have ever...... -
How Lending Club Deals With 121+ Days Late Much to my chagrin, I have managed to pick a Lending Club loan that is now 121+ days late. I thought it a good time to go over how Lending Club handles these situations... They take a different approach and it seems a much more clear cut approach from my...... - Should You Buy A House If You Are In Debt? In this Ask the M-Network article, Rebekah shared that she and her husband are thinking about buying a house. However, they are also $36,000 in credit card debt and can only make minimum payments. Is now the time to buy a house? More importantly, should they buy a house? Here’s......
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