Pro's and Cons of Debt Consolidation
Is there anything bad about putting all your debts in one basket also known
as, consolidating debt? Yes there are lots of reasons and I am going to tell
you about them, but first lets discuss why it is a good idea.
Most of us are under a mountain of debt, a pile so big it will take us 10-15
years to pay it off. Why the heck is that? Of course we keep adding to the
pile, the secret to being rich, as I have said before, is spend less than
you make. If you do not do that it is going to be much harder to retire rich.
The remainder of the article will help for you.
Another reason the pile gets bigger and bigger is the interest we pay on
the debt. When someone lends you money they are not doing it from the goodness
of their heart. They want something extra back, normally more money, which
is where the interest comes in. Some of the lenders out there are called
loan sharks, what defines a loan shark? The amount of interest the government
lets people charge, if you charge too much you are a loan shark. What is
the limit, normally 29.2%? Wow, who would pay that? Well most of us who do
not pay our credit cards off monthly, most credit card companies are 28%.
Several advertise at 18%, what a deal. I had one department store I used
to have a card with call me. They said I was a preferred customer and they’d
like to increase the credit amount my old card allowed by a full ten thousand
dollars. When I asked the rate they said it was only 28%. I told them as
a preferred customer I’d prefer they didn’t do me anymore favors
like that!
We want to get out of debt that is over 7%, at today’s interest rates
anything over that is way too much. Some of us with really bad credit history
may be over that until their payment history is better. How do you get out
of those debts, the words are debt consolidation loan. You go to a huge variety
of lenders and add up all your debt and get a loan for the same amount and
pay everyone off and then you only pay this one place, preferably with an
interest rate about the same or even less than a home loan.
If you can do that, go for it. The key, secret, or technique to super fast
track to wealth is take the extra money you are now saving and pay off this
loan as fast as you can. If you take the savings and go spend it, your life’s
story is likely to have an unhappy ending.
If you cannot get a consolidation loan like this one mentioned above then
it is a “con”. The word ‘con’ is short for confidence
man and refers to a novel from the 1850’s. Basically they convince
you to give them whatever they want, things that are for their benefit, but
you think it is helping you. Some not so nice financial people can make good
money selling your debt to other lending institutions. Normally the early
part of the contract you get good rates but later things start to change
and not for the better. You go back to the ‘con man’ and ask
what the %$ is going on. Their reply, “did you not read your contract”.
Well you did or did not, normally you would need a PhD to understand it.
What happens? You end up looking for a way out of this contract, which likely
will cost you a bunch of money. The unscrupulous lenders will find a way
to take advantage of you at some point in the contract.
This is why you must take your time doing debt consolidation. The concept
of taking a bunch of high interest debts and putting them all together into
one payment with a much lower interest rate is always a good idea. The only
real downside is you must do your research and know the fine print of the
deal so you don’t wake up with a worse situation in six months. Can
a debt consolidation loan work in your favor? Yes, but you must do your homework
too. Be smart, be wealthy.
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