The Facts about Debt Consolidation

Debt consolidation is simply “con” because you think you’ve to do something on the debt problem. The debt is still there, like cause it – your habits of movement it! You can’t borrow your debt-exports. You can’t leave the bottom of the hole by digging. Real debt help is not quick or easy.

Larry Burkett, renowned financial author, said that the debt is not a problem; it are the symptoms. I feel debt is over-spending and under saving symptoms. Of our financial coaches would not recommend our customers debt consolidation. Why? Since the debt consolidation doesn’t work.

Debt Consolidation Statistics
A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn’t have a game plan to either pay cash or not buy at all. He also hasn’t saved for “unexpected events” which will also become debt.

Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, but if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.

Debt Consolidation Example
For example, let’s say you have $30,000 in unsecured debt, including a two-year loan for $10,000 at 12%, and a four-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn’t it? Who wouldn’t want to pay $460 less per month in payments?

But they don’t tell you that will now require you to pay the loans for six years. This may not sound that bad for you at first, unless you realize how many more you have to pay an extra fee will actually be paid. You will now pay $46,080 to pay the new loan on the original $40,392 loan, even with lower interest rates to 9%. This also means that you are paid $5,688 more for the “lower payment”. Not such a good deal after all. This example shows you why they are in the business – because they make money off of you.

The Real Way to Get Out of Debt
The answer is not interest rates; the answer is full of money changes. You leave the debt is through changing your habits. You need to decide to be in a written game plan and stick to it. Get an extra job and start paying the debt. Live in less than you do. It is not rocket science, but it is emotional, is why most people need to get through it with the help from the financial advisory. Don’t try debt consolidation!

source article : Dave Ramsey

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