Debt Free

Like anything else, the debt consolidation question has no easy answers. It boils down to your particular situation. If your debt is caused by a one time circumstance, such as illness, injury, or job loss, that caused you to rack up some otherwise unavoidable credit card bills, debt consolidation might be just what the doctor ordered. On the other hand, if your indebtedness is a result of too many free for alls at the mall, nights out on the town, or excursions to Vegas for strippers and poker tournaments (which you can never seem to win), debt consolidation is only a short term solution with dire long term consequnces. 

Debt consolidation is great because it allows you to use a secured loan, with subsequently lower interest rates, to pay off higher interest financial obligations. Debt consolidation sucks because the reason the interest rates are so much lower with a debt consolidation loan is because it is a secured loan. A secured loan represents a much lower risk for the lender and that is reflected in the interest rate. That security is, more often than not, your humble abode. You also have to be aware that the longer term on some of these loans can have you paying more in total interest payments even though the interest rate is much lower.

As you’re using your home for the security on your loan, you had better be damned sure the circumstances that conspired to deliver you into your current deep debt situation are resolved. If they rear their ugly head again, you could be living under an overpass on US1. It comes down to debt management. Proper debt management draws from a toolbox in which a debt consolidation loan is but one tool to be considered. According to many industry insiders, many people who avail themselves of a debt consolidation loan find themselves worse off than when they started. By some estimates, this number tops 75%. Why?

Why, you ask? It’s simply because they thought they could make the debt problem go away by using a debt consolidation loan. As I noted above, that only works if you’re financial habits are good ones and you’re spending less than you make. Many debt consolidation customers just don’t have the financial discipline to rein in their spending hence they wind up in the financial dog house once again.

Before you jump onto the debt consolidation bandwagon, you need to make a solid debt management plan that you can follow to get yourself permanently out of debt. Yes, it’s true, you may have to skip a few sale days at the mall, but hey, you just went to all the Memorial Day sales last weekend, what better time to quit? So, maybe a debt consolidation loan is the best course of action but you better really have your ducks in a nice, neat row first.