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Debt Consolidation IS For Dummies |
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Written by David Banervos
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Tuesday, 01 July 2008 10:21 |
Why debt settlement is a better choice for struggling consumers
If you have a sizable debt to contend with, your ears probably perk up whenever an ad for “debt consolidation” plays on television. They make big promises of lower monthly payments lower interest rates, but like with most people who try to sell you a quick fix, these ads aren’t giving you the full picture.
Here are the prime reasons why you should think twice about singing up for a debt consolidation loan.
Treats the Symptoms, Not the Disease
If a construction worker strolls into an emergency room with a nail sticking out of his head and complains of a headache, the doctor isn’t going to just write up a prescription for vicodin and send him on his way. Why? Because that’s just taking care of the pain being caused by the problem, and the not the problem itself
But for some reason, people think it’s OK to do the exact same thing with their debt. They treat the symptom (high balances on credit cards) and not the disease (poor financial habits.) In fact, without first addressing the spending practices that got you into debt in the first place, you a debt consolidation loan might actually get you deeper into debt. By transferring your debt to a different loan, your credit cards are free again for you spend to your heart’s content and, thus essentially doubling your problem if you don’t have your money habits under control.
Keeps You in Debt Longer
The goal of anyone who struggles with credit cards should be to break free from their debt as soon as humanly possible. Yet by taking out a debt consolidation loan, most people do precisely the opposite. Debt consolidation loans constantly boast about how you will be able to make “lower monthly payments,” but the problem is that you shouldn’t want that. You should want to pay as much of your loan as you can possibly afford every month. The less you pay, the more you are just spinning your wheels by paying a lot of the interest and little of the principal, thus forcing you by be stuck with your debt a lot longer than you have to be.
Costs You Even More Money
People who offer debt consolidation loans aren’t offering their services out of the kindness of their hearts. They expect to make a buck, and specifically they expect to make a buck off of you. Depending on your credit, the interest that they offer is usually not much better, or even worse, than what you pay to the credit car companies themselves. And they come loaded with hidden costs, like fees and insurance, that can drive the cost of consolidating through the roof.
Can Lower Your Credit score
Taking out a debt consolidation loan raises a red flag for a lot of lenders. It signals that you have a tendency to open more credit accounts that you handle and are forced to take out yet another loan just to handle it all. This means that it won’t just take you longer to get out of debt, it will take you longer to build up your credit. Which in turn means paying higher interest rates for any future loans you might want to take out, such as an auto loan or mortgage.
It is much smarter to simply reexamine how you are handling your money and negotiating with your creditors. |
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Last Updated ( Friday, 25 July 2008 07:30 )
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Debt Consolidation 