Myths, facts, and your finances see to go hand-in-hand in many instances. With so many consumers drowning in credit card debt, the idea of debt consolidation seems great. It’s a way to keep your debts together in one payment while eliminating numerous interest rates and higher payments. You’ll have a smaller monthly payment, less money goes toward interest so you can pay off your debts faster, and you’re going to see a lot of improvement in a lot less time. The only problem with this is it’s not always the case. Debt consolidation isn’t always the best idea, and it’s not always what it seems. It’s time to get to know what debt consolidation really means, and how the truth will affect your financial future.
It’s Not a Solution
Debt consolidation isn’t always a bad thing, but it’s not a solution. If you consolidate with a no-interest credit card or a personal loan, you don’t affect your credit score too much. You do have a lower payment, you do have less interest to pay, and your debt can be paid much faster. The problem is many consumers see this as a solution and no longer consider themselves in debt as much as they were before they consolidated.
If you’re not willing to learn how to manage your debt or learn how to go into the future with more knowledge, this tends to be a catalyst that sends consumers into more debt. Now you have all these credit cards with no balance, and the temptation to use them becomes too great. You must be disciplined enough not to do that, and you must know how to close certain cards and why closing others is a bad idea.
If you stop to do the math when considering debt consolidation with a professional company, you often pay more than you do to just pay off your loan. The price is far higher in many ways. It’s helpful to look at the math. When a debt consolidation company offers you a lower payment for all your debts along with one interest rate, it does seem a lot less expensive. The problem is many people could pay off their debts a lot faster on their own than they can with a company. Even with a lower payment and interest rate, paying a debt consolidation company for a longer period of time means you’re paying significantly more for significantly longer. There’s no savings there at all.
The other problem with debt consolidation is many people don’t see how it affects their credit. If you choose to work with a company, it’s easy to assume you’re in good hands. The problem lies in being told to cease making payments while the company negotiates settlements with your creditors. You might end up with a lower payment and less interest, but you’re going to have negative remarks on your credit score. You now officially have late payments and missed payments. Those stay there for 7 years. Can you afford to have those marks on your credit for 7 years? They have a lasting negative effect on your credit, and they’re going to haunt your score.
If you want to pay off your debts by consolidating them, do it. Just remember to do the math and see if you’re really saving anything going this route. It’s helpful to take time to learn how to manage your debt without paying more and without falling back into dangerous financial habits. Can you afford to do that without creating more debt? Your job is to learn to manage your finances, stay out of debt, and create a brighter financial future.
The truth about debt consolidation is it works for some, and it doesn’t work for others. It’s not always a bad idea, but it’s not always a wonderful solution. Each consumer looking at debt consolidation as a financial option should consider all the factors and do the math to determine what it really means for their finances before they sign any paperwork or make any financial changes.