You’re in deep with credit cards, student loan debt and car loans. Minimum monthly payments aren’t doing the trick to help nix your debt. Something has to change, and you’re considering debt consolidation because of the allure of one easy payment and the promise of lower interest rates.
What Is Debt Consolidation?
Debt consolidation is the combination of several unsecured debts—payday loans, credit cards, medical bills—into one monthly bill with the illusion of a lower interest rate, lower monthly payment and simplified debt relief plan.
Check out this article from Dave Ramsey on Debt Consolidation: https://www.daveramsey.com/blog/debt-consolidation-truth
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Freedom In A Budget
Debt consolidation does not help with getting rid of debt in most cases… for me it just gave me the ability to add more to my debt total. Currently debt consolidation loans make up 21.6% of my overall debt – it would be a higher portion of my debt if the student loans weren't so big. (Kelly – feel free to do the maths on what that percentage works out to dollarwise from previous email discussions).
Here in NZ, credit laws require financial institutions to give a clear breakdown of what the loan will cost you over the course of the loan if you don't make extra payments, so it's rare to have a introductory rate. Most are officially on a floating rate but in my experience, this rate doesn't actually get changed often and even when it does, it's normally only 1-2% maximum – based on changes to the country's Official Cash Rate.
Great points…years ago I went to a debt consolidation ""counselor""…well not much counseling went on, I realized pertty quickly the older woman setting arcoss from me knew less about managing money then I did…I ran ?. After the much research and prayer I discovered uncle Dave, lol and debt snow ball it was. Debt consolidation in my opinion is never the answer it doesn't get to the root of the issue which in most cases is behavior.
Debt consolidation can certainly be a bait and switch product. I learned from my mom's experience with credit cards to never consolidate. It usually ends up hurting more than helping (at least from what I've seen). Thanks for sharing
We have consolidated several times. Worst financial decisions ever. Just allowed us to get more debt.
31 Years ago my husband was out of work for 9 months and we used our credit cards to make ends meet. We had several cards and the payments were killing us barely making minimums and paying 18-21% interest. Once he found a job, we went to our bank, took out a bank loan that covered them all and used our car as collateral since it was ours. The loan was for 3 years but we took the extra monthly money and put it against the balance each month along with extra and paid off the entire amount in 18 months. Our total amount of debt was $7000 on 5 different cards. This wouldn't work for everyone. But the bank % was much less than credit card, we closed the credit card accounts except for 1 and never looked back. My parents taught me it is wrong to file bankruptcy because you created the debt, it is your place to pay it off, even if you have to take a second job. I understand it is much different today, but this is our story. We have never carried credit card debt since, or any other debt. Once the loan was paid, we started applying that to our house. Truly the borrower is slave to the lender. Enjoy your posts.
I have never done this, but I have done zero percent for 12 months on appliances. I paid it off earlier.
I ran into a problem with debt in the past and went to a debt consolidation and wish I would have just filed for bankruptcy. It took me 6 years to pay off and my credit didn’t start recovering until I was paid off where if I would have filed bankruptcy I wouldn’t have had to wait so long to rebuild my credit~~~Sandy
I think it’s really sad that a lot of people fall into debt consolidation because they don’t know what else to do. I know that when I was in major debt with my ex-husband, we could not even qualify for a debt consolidation loan though. I guess probably a good thing!