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Is A Debt Consolidation Loan Your Best Option?
For many people the lure of easy credit has taken them into the forbidden zone of debt. Between debt on regular credit cards, shopping store credit cards, home equity lines of credit, mortgages and car payments its no wonder consumers are finding themselves financially and emotionally drained as they float in a sea of debt.
At a time like this with debt continuing to mount the decision to use a debt consolidation loan may seem like the smart thing to do - or is it? Certainly the top financial priority should be to pay off all outstanding debt. Unfortunately figuring out how to do this and which debt to pay off first can be difficult at best and even lead to more financially related stress.
This dilemma is common among consumers struggling to eliminate debt in order to regain their financial sanity. A debt consolidation loan can be an easy answer to solve the current financial strain brought on by a large outstanding debt amount but it may not solve the long term issue. The reason is because many consumers obtain a debt consolidation loan and correctly use it to pay off their debt. Unfortunatly suddenly feeling good about their new found financial strength they make the mistake of using their credit cards again and again and again - essentially repeating the blunders that got them into trouble in the first place. Compound that with the fact that they now also must pay off teh debt consolidation loan they orginally got in order to relieve them of their initial financial burdens. This is a classic example of where using a debt consolidation loan could lead to more harm then good.
A better option would be to pay off their credit cards one at a time starting with the card that currently has the biggest balance while paying the minimum amount neccessary to all other cards. Any extra money should be devoted to paying off the card with the highest balance first. Once that first credit card is paid off then move onto the card with the next highest balance. Repeat this process until all credit cards are fully paid off then put all but one in a drawer for safe keeping. Only keep the one card handy for emergency purposes. Now concentrate all money that was previous earmarked as credit card payments towards paying off other bills - perhaps a car or house payment. This option will only work so long as the original credit cards are not charged back up again.
If a consumer has financial strength then a debt consolidation loan can be beneficial for a number of reasons. First it eliminates trying to juggle numerous bills in various amounts all at once and instead allows a consumer to focus on paying one large bill. This saves time, energy and helps to prevent accidently forgetting to pay one of the many prvious bills which could lead to more financial charges and stress. The second reason is that a debt consolidation loan should lower the actual amount of money paid out each month. NOTE - it may lower the monthly amount but will most likely increase the oerall amount needed to finally pay off all of teh combined bills depending on the terms of the loan contract. Finally it can provide a psychological boost by relieving an individual of many small bills in order to concentrate on one larger bill.
Ultimately the choice as the whether a debt consolidation loan is the right answer lies with the consumer. Every situation is different and must be treated as such. No matter what option a consumer takes to eliminate debt if there is no financial resolve or strength then they will again fall into the debt trap.
Debt Consolidation Loans: Thousands Now Out Of Debt, Who Never Thought They Would Be!
A Debt consolidation loan: Is a personal loan you use to pay all your debts. You may odtain it from a finance company, bank, credit union, debt consolidation company, merchant association, debt pooling service, or nonprofit consumer debt service. You may also borrow from friends and relatives.
A Debt consolidation loan: Lets you effectively shift responsibility for many debts to the responsibility for one larger debt. In order that this debt is manageable, your payments are spread out over a longer period of time. As interest accrues on this typpe of loan, the total amount of debt you owe also increases. You trade a larger payback and longer debt period for a smaller periodic payment.
Sometimes a debt consolidation loan offers an immediate answer to your debt, allowing you:
The convenience of paying only one creditor
A lower monthly bill
To shop for a lower interest rate and moree favorable terms
An alternative to bankruptcy
To possibly save your credit.
With a consolidation loan, Your fixed monthly consolidated payment is calculated according to the lowest payment amount accepted by your creditors.
The agency you have hired will distribute the amount of your fixed monthly consolidated payment to each creditor.
Most creditors will only reduce or stop your interest fees if their minimum payment is met, but if so, the interest rate reduction with these programs can range from no change to the freezing of interest depending on the creditors policy.
This can save you thousands because rates that are usually 12%-24% can get reduced to 10%, 8%, 6% or 0%
Once youve found yourself in debt it may feel like a downward spiral from which you dont know how youll ever regain your footing.
Its hard enough to find simple answers and may seem impossible when the collection agencies constantly call your house and threaten the security of you and your family.
Ultimately your decision to choose a debt consolidation loan, a debt management program, or a consumer credit counseling program to consolidate credit card debt, should be based on your own personal financial situation.
Debt Consolidation: Why And How This Strategy Often Backfires!
Debt consolidation solutions, has found that as good as it sounds, debt consolidation loans rarely save you any money.
In fact, they usually backfire and you wind up with an even greater debt load than before.
Why does such a perfect sounding debt reduction mechanism often trap you into futher indebtedness?
Because it is a strategy based upon the premise that you can borrow your way out of debt!
We have found that to work, a debt consolidation loan requires enormous focus and self-control. It is all too common for debtors to begin using their credit as soon as the debt is paid or significantly reduced.
This incurs more debt. Since this new debt is clearly beyond the scope of the debt consolidation loan, you again have two loans to repay.
This is how small debts come back and again mount into an ever- increasing spiral of unmanageable financial chaos.
The budget necessary to bring your debts into line makes no allowances for this kind of behavior or attitude. Too many people lack the self-control and strict budgeting discipline necessary for a debt consolidation loan to work.
A debt consolidation loan only makes sense if you can reduce your interest rate. Without a significant interest rate reduction you are only increasing your debt over an extended period of time. The reduction must be low enough to offset the increased time you will be paying it.
Make a list of your outstanding debts and the current interest rate you are paying for each. Do not consolidate any debt that has an interst rate below that of the debt consolidation loan.
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