Debt Consolidation Benefits

• One monthly payment instead of many reduces the complexity of your financial life as you only have to track and pay one account. This lessens the chances of accidentally paying a bill late because you have to keep up with so many different accounts.
• A lower interest rate means you will save money in the long run as you will be paying less interest on your debt and your monthly payments should be reduced.
• A smaller monthly payment means more money in your pocket each month. If you are on a tight budget or struggling to keep up, this benefit alone makes debt consolidation appear worth it.

Debt Consolidation Drawbacks

• More disposable income can lull you into a false sense of security. With the debt consolidation loan lowering your payments to the point that you actually have a little money to spend you can begin to feel as though you aren’t in bad financial shape.
• Empty credit accounts that were paid off with the proceeds from the consolidation loan can prove to be to strong to resist for many. The whole I’ll just charge this new iPhone because I have to have it and I’ll pay it off when the bill comes is how you likely got into trouble in the first place.

Is It Really Just Delaying the Inevitable?

In many cases it is. Even though the benefits outnumber the drawbacks, and the two drawbacks at first seem to be benefits, for many people in financial trouble the consolidation loan doesn’t treat the core problem.

If you are in dire straits, you most likely got there as a result of a lot of bad financial decisions made over time. Giving you a lower debt payment and empty credit accounts  only treats the symptoms and not the root cause, which is your lack of ability to handle your finances that got you in a financial mess in the first place.

People who consolidate their debt often wind up with the consolidation loan and credit cards that are maxed out again, effectively doubling what they owed before the consolidation. In fact, most money management courses will tell you to stay away from consolidation loans until you have spent a couple of years adhering to a strict financial regimen to prove that you are able to handle your finances before applying for a consolidation loan.

If you find yourself in debt due to illness or job loss, then debt consolidation may make sense for you if you have sound money management skills. The loan may make the difference between going under and making a full financial recovery.

Only you know which camp you fall in, so make a smart decision because your financial future hangs in the balance.

Photo by eric731

* “Debt relief is just a phone call away!”

* “Stop paying your debts today!”

* “Erase your high interest rate! Call now”

Every year, millions are lured in with high hopes. And it’s easy to understand why.

With so many individuals now carrying high credit card balances, never before has the prospect of credit card consolidation appeared more appealing. Yet, despite the glorified status lenders have bestowed up them, credit card consolidations can quickly turn a financial problem into an irrevocable financial crisis.

The promised “quick fix” of debt consolidation is powerfully tempting. But the slippery slope of consolidation loans can introduce a variety of other threats to one’s fiscal health.

Among the gravest dangers:

Small Fees Become Big Expenses

Consolidating debt isn’t free. And the costs (hidden or straightforward) can be significant. Securing a new loan or consolidating old ones may not only incur administrative and processing fees, you may also be penalized for paying off your balance early (assuming, of course, that you could). Even worse, consolidation loans are frequently secured against one’s home, which subsequently leads to legal fees and a host of other ancillary expenses. There is no shortage of “small fees.” When totaled, it’s a heavy price tag for credit card consolidation.

The Balance Transfer Catch

Balance-transfer opportunities are a dime a dozen. And although they work for the short term, zero or low rates only last for a limited period of time. If you think you can repay the full balance during that time but ultimately can’t, you may soon end up paying a higher rate on your outstanding debt than you were before the consolidation.

Stranger Danger with Debt

As children, we were frequently told never to talk to strangers. Some credit lenders should have been included in those maternal warnings. Because numerous debt consolidation providers make substantial commission on balance transfers and loan consolidations, there is no shortage of misleading advocates for consolidation trying to squeeze even more money from your pockets.

The Risk Factor

Taking out consolidation loans or having to switch balances back and forth leaves a blemish on your financial history. After a substantial amount of this sort of activity is recorded, it will portray your financial responsibility in a negative light and leave you a “high-risk” candidate for financial products and services in the future.

Does Credit Card Consolidation Make Sense For You?

It depends.

If anything is easier to get into than debt, it’s more debt. And, without exception, this is ironically the gravest danger posed by credit card debt consolidation.

Unlike a debt consolidation loan, which is typically secured debt, credit card debt itself is unsecured debt. Once your present balances are consolidated through a loan or multiple balance transfers, your remaining credit cards return to having a zero balance with ready access.

If that zero figure remains unchanged throughout your entire repayment process on consolidated debt, it might be in your best interest to seek a credit card consolidation opportunity. If, however, you have any inclination that you will soon max-out your credit cards again and abuse your consolidation process as a renewed license to spend, avoid this financial alternative at all costs.

Photo by danesparza