Should I Use Debt ConsolidationYou may be asking, should I use debt consolidation? Debt consolidation is a practice that is good in theory. You simply consolidate all of your bills into one payment at hopefully a lower interest rate and then pay off this one debt. In theory this would work great but in real life it is not the way to eliminate your debt. Debt consolidation actually has two varieties, loans and programs. A debt consolidation program is a company or organization that takes control of your payments. You just send them one payment and they say that they will negotiate lower payments and/or lower rates on your debts. A debt consolidation loan is simply another loan that takes the place of all of your other debts under one loan. These are usually home refinance loans or credit cards with lower interest rates. If you are asking, should I use debt consolidation? you need to know that there are a few problems with these methods. The first of which is that you are using debt to get rid of debt. To be truly "bad debt" free you have to change your lifestyle and stop thinking that you can USE debt to help yourself out of debt. If you haven't changed your financial lifestyle, chances are, you will return to debt even if you pay off your original debt. Never use your home to finance "bad debt" with a home equity loan. Do not jeopardize your home. If for some reason you would default on the loan you would lose your house just because of something that you charged on a credit card. A consolidation loan is going to cost you more money in the long run. Even if the interest rate is lower, a longer term loan would cost you more in interest, not to mention any fees required to get the loan. Debt consolidation programs also have their downside. Why would you want to put your payments into the hands of someone else? If they do not make the payments you will still be responsible. I have heard reports of just this thing occurring. You have to change your lifestyle and get yourself out of debt. Do not expect someone else to do it for you. So, if you are asking, should I use debt consolidation, the answer is no, debt consolidation is not the answer to your debt problems. Cut up your credit cards, put them in order from smallest to largest and start throwing as much money at them as you can! You can dig yourself out of this hole.
|
