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Article Series: Debt
Relief & Debt Consolidation
I Want To Get Rid
Of My Debt...NOW!
When
is Debt Consolidation Not The Right Option?
You may have started your decline into debt
slowly but you suddenly realize that unless you pull the emergency
brake, you may actually be on the road bankruptcy. As it is,
you are precariously teetering on the edge of having to use
one credit account to pay another one. Maybe you did not notice
how it happened at first, but the reality is still the same,
you need to change something in your debt profile.
Consolidating
debt is usually a first thought that cross many debtors’
minds. After all, a consolidated debt may have substantially
lower interest rates and therefore a much lower payment than
all your various creditors are asking you to pay on a monthly
basis. While at face value this might look like a good solution,
there are some times when debt consolidation is not the right
thing to do.
For example, if you got into debt in the first place because
you either lacked self-discipline or simply are living above
your means on a day-to-day basis, the odds are pretty good
that you will once again find yourself in that same predicament
when your creditors are paid off. If you do not bring in enough
money to support your lifestyle, but if you rely on credit
cards to make monthly payments to utilities, to purchase food
and other necessities, you are only holding back potential
financial disaster on a very temporary basis. As a matter of
fact, the odds are good that you will have run up your credit
cards once again before you are even halfway done paying for
your consolidation loan. Ask yourself if you are willing
– and able – to cut up your credit cards and still afford the
necessities. If the answer is no, then a consolidation loan
will not help you in the long run.
Another disadvantage of a consolidation loan is the fact that
you may actually be paying more money in the long run. Sure,
the payments are much lower than all your bills combined were
beforehand, and theoretically you could pay down the loan faster
if you had to, yet this does not always happen. As a matter
of fact, you might need the extra funds just to stay afloat.
So if you do the math and find that you could have paid off
the original credit card in about three years, but your consolidation
loan runs for a period of five years, you may actually be increasing
the amount of money paid altogether, since there is undoubtedly
interest being added to the principal.
If you are thinking of securing a consolidation loan with
an asset, such as taking out a home equity loan on your house,
you will need to remember that failure to pay off the loan
will not only make it hard to sell the property, but may actually
cause your house to be sold from under you. A forced sale,
or foreclosure, is an option the lender has to receive the
funds they lent if you are unable or unwilling to pay. Before
using your primary residence as security to pay off unsecured
debt, make sure you are able to pay it back in the long term.
If you are uncertain of your ability to pay, or if your professional
outlook is a bit shaky at the moment because of a merger or
buy-out, you might want to think twice before putting your
home on the line.
It is no great mystery that outstanding debts will rob you
of your sleep and will cause strive and unhappiness in your
home life. Rather than embarking on adding even more debt,
even if it is in the form of a consolidation loan, it might
be wise if you spoke to financial planner, or if you simply
logged onto one of the many Internet sites that offer free
budgeting software. Once you know where you are at in financial
terms, you will be much more comfortable at making an educated
decision about which steps to take to regain your financial
freedom. If, on the other hand, you are simply taking the first
step you can think of, you might not only put yourself into
even more jeopardy, but quite possibly pay out more money than
you really had to in the first place!
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SolveYourProblem.com
: 2007
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