When you're drowning in debt, all you want to do is come up for air. Debt consolidation promises to make things easier by rolling all of your debts into one manageable payment. But is it really a good idea?
Probably not, and here's why: Debt consolidation can leave you in MORE debt.
How debt consolidation is supposed to work
In theory, debt consolidation is supposed to help you out by reducing late fees and interest rates. The pitch goes like this: instead of having to juggle multiple payments, you only have to worry about one. When you're in debt, reducing worry and paperwork sounds like a good thing.
Reducing the overall interest rate sounds good as well, right?
I remember feeling so frustrated when I'd send in a payment to a credit card, and it wouldn't even make a dent because of all the interest. If only more of that payment went to reduce what I actually owed!
Except interest rates weren't my problem -- even though they felt like the issue.
My behavior was.
Why debt consolidation can leave you with more debt
You've heard the Albert Einstein quote about insanity, right? ("Insanity is doing the same thing over and over again and expecting different results.")
When you take out a debt consolidation loan order to get out of debt, chances are you're doing the same thing you've always done when things get rough: you're borrowing money.
If you don't change, you will likely end up with a consolidation loan AND new debts, leaving you worse off than before. Who wants to owe even more money?
Change your behavior instead
There are really only two things you need to do to get out of debt:
1. Stop borrowing.
2. Make your existing payments on time. (And ideally pay more than the minium due.)
Easier said than done, right? But it's where you have to start. Once you get in the habit of turning to yourself and your own creativity instead of debt when problems arise, your life will start to change.
That means planning ahead for emergencies and car repairs. Deciding what you want to buy, and waiting until you have the money until you do so. Tracking your spending, and getting appropriate insurance.
Make those changes, and you'll start to see real progress. I know, because my husband and I got out of over $147,000 in debt (including our mortgage.) That was only possible because we changed our behaviors.
So start with something small, stick with it, and one day you'll be debt free.
Back when I had a lot of credit card debt, I always hated that I was only paying interest. I really didn't like writing a fat check to the CC company each month. In the end, one of the best pieces of advice I ever got about dealing with credit card debt was to only pay only the minium due each month. I know, I know all that interest. Well, you can't use your credit cards if they are maxed out, and you'll develop a habit that will last a lifetime. It's an easy (easier?) way to transition to CC free living. Pay cash.
I now only use a CC where cash is inconvenient or not possible. I often pay my CC bill more than once a month, since I can simply and easily do that online.
I can agree with this artical but find it disapointing that when you go to ask for such a loan most people are turned away because of high debt levels. That being said the don't even care if all your loans are in good standing, and you have not been late for a payment in over five years. P.S. I aslo pay well above the minum every month. Spending money is not a bad thing if you can manage it. I guess I shouldn't be angry about being declined but, it bothers me all the same. Guess I will just do with out it and make the two payments was worth a try I guess...