When can debt consolidation be a good idea? Those who are living and working have debt, unfortunately this is an irrefutable fact. There are credit cards or credit cards with invoices with different amounts to be paid, the daughter needed dental appliance dental surgery, her maintenance car, school supplies, day-to-day shopping, visits to the mall where you bought more than you should etc.
And all this does not include the installments of your mortgage loan, payment of vehicle financing, student loan payment, your electricity bill, your gas bill, internet, cable TV, landline, Netflix and so on..
It is easy to see why debt consolidation is an attractive solution. Having the ability to simplify your finances and reduce the number of payments you make each month means less work and fewer opportunities to accidentally forget one or other of your timely bills. However, it is important to understand why debt consolidation may not be a good idea.
The Truth About Making a Debt Consolidation
Consolidating debts exists because it is beneficial to lenders and not to borrowers. Debt consolidation is popular because it is often also beneficial to consumers. When loans for debt consolidation, debt transfers, debt management programs and refinancing to pay off debts are mutually beneficial, they are a great way to put your financial home in order.
But when all these modalities are not like the best interest? There are some circumstances in which debt consolidation, ie putting all your bills together can do more harm than good, so see if you fit into any of these categories and weigh the pros and cons before applying for a consolidation.
When you do not plan to change your financial habits
One of the main benefits of hiring debt consolidation should be to be able to breathe more relieved in finances. By combining a series of large, medium, and small-cost payments into one (usually) flat payment, you’ll be able to find more space in your monthly budget.
What do you do the consolidation work or not? If you see a room where there is an opportunity to continue stretching your commitments financially – simply to pay for your desires rather than your needs – you will quickly discover that this debt consolidation economy disappears and your ability to manage your new budget will be extremely distressed.
Not addressing debt consolidation as a single solution to all your financial concerns is a mistake. If you have habits of using your money in a bad way, and do not address the issues of keeping your budget healthy, consolidating your debts will only delay your financial problems.
Instead, focus on the issues that lead you to consider consolidation as a right tool for you to end many debt and lower the cost of some interest and extra expenses with fines.
When you are putting your home in danger
One of the most popular ways to make a consolidation is to refinance your home or property for a new home loan. This usually makes financial sense because these loan rates will almost always be significantly lower than the credit card or personal loan rates.
The problem here is that you are converting unsecured debt into a secured debt and putting your home at risk in the lending process.
If you are living an unsecured financial life with out of control credit card bills, many small loans, credit cards, car finance etc… it may be attractive to roll all these debts down from a mortgage and deal with just a new payment every month.
So far it sounds great, however, the key is to look long term at your finances before including your unsecured debt into a re-loan or refinance. When you do, make sure you’re prepared for the worst. Dealing with debt collectors is not fun, but on the other hand, losing your home is a disaster. So be careful.
You want to consolidate to save money
Before agreeing on any type of contract to make a debt consolidation, make sure you fully understand the terms and conditions first. Some things to ask yourself include:
Are there intermediate rates? And, if so, when and what is the value?
How many years will it take to pay everything and how much will you have paid interest to the end?
Are there penalties to pay in advance or repay the loan?
What are the penalties for late payments or missed payments?
Spend some of your time doing math when necessary. Something that looks good to you today may not be so good over time.
What are the risks of debt consolidation versus debt settlement?
A refinance or debt consolidation is totally different from debt settlement. It is incredibly important to know what you are consolidating; with whom it is consolidating; which has been consolidated; and what was paid.
It is worth mentioning that some consolidations are expensive (there are fees and more fees charged by the consolidating company or institution that will make it extremely difficult to obtain credit again in the future because there is no room in the income margin for new discounts.
Do you really want to make a consolidation?
If you are wanting to make a consolidation to recover your finances, you may also want to think about liquidating much of your debt – it’s an idea!