Truth About Debt Consolidation
September 11, 2019
Getting out of debt can be frustratingly difficult, especially if you have multiple credit cards and loans with high-interest rates that you’re desperately trying to pay down. One solution that you might be considering is debt consolidation.
Debt consolidation written by hand and money.
If you have a large amount of debt, there’s a good chance that you’ve been getting a lot of debt consolidation offers in the mail. Some of these offers may seem like the answer you’ve been looking for. However, is debt consolidation actually a good way to get from under your debt?
What Does it Mean to Consolidate Your Debt?
The idea behind debt consolidation is relatively simple. Basically, you take out a loan and use that loan to pay off all of your debts. Now instead of having four or five different debts to worry about, you have one single debt. This can seem like a good way to go, especially since not only will your debt be easier to manage, but you’ll likely have a smaller minimum payment to make every month. However, as tempting as this may seem, you might want to think twice about consolidating your debts.
The Drawbacks of Debt Consolidation
The following are just a few of the reasons why you might want to reconsider having your debt consolidated:
- You’re not eliminating debt – If you’re looking for ways to reduce your debt, consolidating it doesn’t actually do this. You’re basically just restructuring your debt. It’s still there, even if you’ve eliminated the balance on all your credit cards.
- You’ll be in debt longer – You’re turning a number of different loans and balances into one large loan. While your monthly payments will be less, it’s going to end up taking much longer to pay off your debt. So unless you pay more than the minimum payments, you’re doing the opposite of what you were trying to do, which was to get out of debt as quickly as possible.
- Your interest rate could be higher – Consolidating your debt can be dangerous if your interest rate is higher. Even if it’s not higher than all the credit cards and loans you’re consolidating, because it’s being consolidated into such a large sum that will take much longer to pay off, you could end up having to pay more in interest as a result once it’s all said and done.
- It doesn’t solve the problem that led to your debt – One of the biggest risks involved in consolidating your debt is the fact that it looks like you’ve gotten rid of a lot of debt. All of the sudden, you might have two or three credit cards that have no balance on them. Instead of focusing on paying down the loan consolidation, you might feel it’d be ok to begin using those credit cards again. In no time at all, you could end up owing just as much as you previously owed on your credit cards — with the addition of having a large loan to pay off as well.
Debt consolidation might seem like a good idea if you have a lot of different debts. But, combining them into a single debt only provides the false perception that you’ve reduced your debts. It’s important to understand that you haven’t done this at all. If you’re trying to get out of debt, consolidating them into one loan isn’t the answer. We’re experts at helping people just like you eliminate debt for good. Learn what your options are without consolidating by contacting us at Safe Money Partners today.
By Jeff Mohlman