Consumer Credit Counseling Article
The Pros and Cons of Debt Consolidation
It is really easy to amass a lot of debt without even thinking about it, and you may not even realize it until those payments start getting tougher and tougher to make on time and you start noticing rising interest rates, and even rising balances thanks to fees that you are being assessed. It can get to the point that you can't even come up with the money for your minimum payments any longer, because the further behind you fall, the more you will be required to pay each month to stay afloat. In this situation, you may be quick to think that debt consolidation could be the answer that you are looking for, after all, you will likely end up with less money being spent each month towards payments, and may even end up with lower interest rates, but you have to really put some thought into this, as it isn't always the easy answer that it seems to be!
While debt consolidation can usually do the things listed above, it doesn't always solve the problem. You need to sit back and look at just how you ended up with so much debt in the first place, which may not always be something you want to do. If you found that your debt came from mostly frivolous spending that wasn't really necessary, then if you don't learn how to control this behavior, you will likely end up back in debt again, before your consolidation loan has even been paid off. This is one of the problems with debt consolidation. People know that they can go this route to save money and get rid of their debt, but they don't really learn anything, not putting any money in savings, and ending up right back in the same situation, or even worse.
If you do go with debt consolidation, you need to not only pay those credit cards off, you need to close the accounts and cut up the cards as well. If you leave one open, it will be all too tempting to use it. Likewise, you will need to learn to automatically toss those new card applications that you get in the mail in the shredder, without even opening them. If you open them, you are much more likely to succumb to the marketing and hype, opening up an account that will only lead you right back into debt again.
When applying for debt consolidation loans, you need to not only look at the here and now, but the long term costs of the loan as well. When you do this, you may see that you are spending more money on the debt consolidation loan than you would be in paying off your debt in other methods. If that is the case, you might want to look for a debt management program offered through credit counseling, or something similar, as you might save more money and payoff your debt faster, while learning how to change your behavior and stick to a budget.
If you are dead set on a debt consolidation loan, consider taking one with a shorter repayment term, which will increase the monthly payment amount, but save you a lot of money in interest long term. You won't have a lot of extra money left over each month, but you will save money that can be used wisely in the future!
The only real way that a debt consolidation loan can be beneficial to you now and in the future is if you take the time to look at your spending habits, and reevaluate the way you look at money. Learn how to save for the items that you don't need right away but would like to have, and put money away for those unexpected emergencies, such as car repairs, that can lead you to go back into debt. If you don't learn to better handle your money, you will not benefit from a debt consolidation loan, period!
