When Debt Consolidation Doesn't Make Any Sense

When faced with numerous debts that are starting to get out of hand, a lot of people begin thinking of a quick solution to their debt problem. Often, the first thing that comes to mind is getting one loan that can pay all their debts. Pay everything at once and have only one monthly payment instead of juggling all their bills.

The Quick Solution This is what debt consolidation is about. And it’s probably what most people know as a quick solution to their debt problem Many indebted people who came to Financial Rescue for debt help have asked if that is exactly what we will do to help them with their debt problem. Debt consolidation is a sensible solution to many people, especially if that new loan, which will be used to pay all existing debts, will be paid at a lower interest rates than your existing debts.

Do the Math Of course, there are caveats to look at before resorting to debt consolidation, one of which is… Will you actually be paying less than all your debts combined, taking into consideration the interest rate and the length of time you'll be paying? The aim of a debt consolidation move is not to reduce your overall debt, but rather the interest that you’ll be paying for all your debts. The problem is that debt consolidation could take a longer time to finish. And the longer you have to pay, the more you are actually paying for your debt!

Tip: Try this online loan calculator to compare the total interests you'll have paid at the end of a payment period.

When a consolidation loan doesn’t make sense Truth is, debt consolidation, or any debt relief option for that matter, doesn’t make any sense if you treat such loan as a quick fix to your problem. That is, you just want to get over it fast and start spending again once all your balances have been paid in full. By simply taking out a new loan, you did not truly eliminate your debt – you merely transferred it to a new lender. And if you never understood the symptom of your debt – overspending with probably no savings at all – then the problem is still there. If the symptom is not eliminated, the problem will go back, no matter how many times you take out a consolidation loan. Debt consolidation may be a good solution for you but it may not eliminate the problem from its roots. In fact, it may be tempting to a spending spree once again when you see clean slate on your accounts. The real solution, once you have paid all your debts, is proper money management and financial literacy coupled with self-discipline. On the practical side, you have to build a saving habit. Simplify your life a little bit to reduce expenses. Get a side job and commit what you earn from that job to paying down your debt. If you have these foundation, any debt relief option will definitely work to make things easier for you. Or who knows, you could even pay your debt on your own.