Debt consolidation

By David Maillie

For most Americans debt has become a way of life. We become introduced to debt at a very young age by credit card companies and banks and are taught through advertising that debt is a normal part of life. Currently the average American has over $8,000 in just credit card debt alone. This doesn’t include the fact that 98% of car buyers take out a loan or lease when they purchase their car. Equip this with a mortgage and other various debts and one can soon verge on the brink of literally drowning in debt. One way to curtail this is debt consolidation.

Basically, with debt consolidation, you are taking all or most of your debts and putting them into one easier monthly payment. Now the all in one payment will make this very enticing to do, but is it a good idea? Robert Kiyosaki, a well known investment guru known for his Rich Dad strategies and books, states that by consolidating you are turning short term debt into long term debt and that is a bad idea. Well, it all depends on the terms and rates of the debts involved and the new consolidated debt.

Debt or loan consolidation can pay off high interest credit cards, store cards, personal loans, bad credit car loans, hospital bills and other high interest items and save you big on interest rates. Many credit cards have rates that top 15, 19 and even 24% or more (all depending on how timely you’ve made your payments, the amount of your outstanding balance, the amount of credit left, etc…) At these high interest rates you are paying a ton of interest. If you have small debts with these high rates then it is best to just pay off the card or debt as quickly as possible and then put it to rest. But if you have a high balance then debt consolidation can definitely help you out.

Basically, if you only have a few small debts with higher interest rates it is actually better to sit down and work out a plan and budget to quickly pay these off one at a time. This is done by paying more than the amount due up to the largest amount you can afford until it is paid off. You may need to cut out extravagances like a daily expensive latte, cut down on eating out or other unnecessary extravagances to obtain your goal, but it will be worth it in the end.

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If you have high amounts of debt you are at your lender and creditors mercy. They can and do change billing terms, increase interest rates, misapply payments, make countless errors in their favor (all major banks do this on purpose as they know they can rake in millions and even billions in late fees, overdraft fees, etc…) In this case, debt consolidation makes great sense as it will remove and payoff these high interest rate loans that could take many years and thousands in interest to payoff.

For some of whom may be on the verge of foreclosure as they find themselves choosing between which bills they can afford and which they cannot pay, debt consolidation can provide a ray of hope. Instead of having multiple payments which they may not be able to afford, they will have one payment which is usually significantly lower than all their current debt payments put together. This can actually make their debt more affordable and simplify their life as they will not have to face phone calls from angry bill collectors, collection agencies, ruined credit histories, possible foreclosure, lawsuits, and even bankruptcy.

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Debt consolidation does have its place and it is for when someone is just drowning in high interest debt. It is also wise to note that one must change their spending habits as once the debt consolidation goes through some people go right back to buying and spending like there is no tomorrow and put themselves right back where they started and even worse. It is a good idea to seek professional help in the way of a certified and licensed financial advisor (just make sure they are fee based and not associated with a credit card or insurance company as commission based financial advisors will not usually help you with debts and instead push you to purchase things like whole life insurance and other investments that only benefit them and cost you a bundle) to best determine the correct route you should take and to budget and plan so it doesn’t happen again.

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