Is Debt Consolidation a Good Idea?
At first glance, debt consolidation may sound like a good idea when you’re faced with $10,000 in credit card debt or medical bills and don’t see a realistic way out. Before you pull the trigger, be sure you know the benefits and the negative side to debt consolidation so you can make the best decision. Consolidating your debt may just be the right solution for you, but be confident that it is the route you want to go before making that choice.
The plus side to consolidating your bills is that it makes things more manageable. People who are drowning in debt and way behind in their bills have a tendency to avoid the problem all together. Bills are received in the mail, tossed in a corner and never opened, and the consumer has no real understanding of how much they owe or where to begin.
Minimum monthly payments, if affordable, don’t even put a dent in paying down the debts since the interest eats away at any progress you may have otherwise made. That’s where debt consolidation can help.
This option will take all of your bills and collapse them in to one payment. Instead of having 8 credit card bills, you’ll have just one bill to focus on. Psychologically, that may be easier to handle. Normally by consolidating your bills you will also reduce your monthly payment - on the front end. Each of your credit cards now have different interest rates, but consolidating them will bring all of those rates down to one, potentially lower rate.
There may be options to stretch out your payments as well. By turning your bills in to installment payments, you may be able to reduce your monthly bill by agreeing to a 10 year payoff plan, for example. Sounds great, right. Here’s the down side…
Debt consolidation just buys you time and may be a temporary fix. In order to become debt free, you need to target the root of the problem and put and end to that. That probably means changing your spending behavior in some way. Secondly, debt consolidation costs you more money - only it is spread out over time rather than large, monthly payments. The quicker you can pay off your bills, the better.
If you choose this option, you have to be incredibly disciplined to not incur more debt. Otherwise you’ll end up with the same problems you were facing before, only this time you will be deep in debt and have a debt consolidation loan to worry about. Be sure to thoroughly consider your options before making any drastic financial decisions such as this.
