The Truth About Debt Consolidation

Myth: Debt consolidation saves interest and has a small payment.

Truth: Debt consolidation is dangerous because they treat only the symptoms.

Debt consolidation is nothing more than the "with" because you believe something that the debt problem. The debt is still there, as well as the ways in which it was caused by - you've just changed! You can not borrow your way out of debt. You can not get out of a hole by digging the bottom. Help debit truth is not simple or easy.

Larry Burkett, financial author, says debt is not the problem is a symptom. I feel debt is the symptom of overspending and undersaving. Our financial coaches will not recommend debt consolidation for a client. Why? Because debt consolidation does not work.

Debt Statistics

A friend of mine works in a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, debt grows again. Why? He has no game plan is to pay cash or not buy at all. Nor has saved for "unexpected" which will also become debt.

Debt consolidation seems appealing because there is a lower rate on some debt and a lower amount. But in almost all cases, we review, we find that the lower payment exists not because the rate is actually lower but because the concept is extended. If you stay in debt longer, you get a lower payment, but if you stay in debt longer, you pay the lender more, which is why they are in the business of debt consolidation.

Example of Debt Consolidation

For example, say you have $ 30 000 unsecured debt, including a two-year loan for $ 10 000 to 12% and a loan of $ 20,000 for four years at 10%. Your monthly payment of $ 10 000 loan is $ 517 and $ 583 to $ 20,000 loan for a total payment of $ 1.100 per month. The business of debt consolidation you said they were able to reduce your payment to $ 640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans into one. Sounds great, right? Who would not want to pay $ 460 less per month in payments?

But do not tell you now will take six years to repay the loan. It may seem that bad in the first place so they realize how much you will pay in additional payments. Now pay $ 46 080 to pay the new loan vs. $ 40 392 for the original loan, although with lower interest rates of 9%. This means that you paid $ 5,688 more for the "lower down payment." It is not a bargain after all. This example shows why they are in the business - because they make money from you.

The real way to get out of debt

The answer is not the interest, the answer is a total metamorphosis of money. How you get out of debt is to change your habits. You have to commit to reach a written game plan and stick to it. Get more work and start paying down the debt. Live on less than you. It's not rocket science, but it is emotional, which is why most people need help through it from someone like Dave Ramsey. Do not try debt consolidation!