Debt Consolidation Deal or No Deal

an article added by: A030354 at 01082010


Debt and credit :: Debt Consolidation Deal or No Deal ::

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The start of a new year is great for change and new beginnings, especially in your financial life. Most people make resolutions to save money, spend less, or get a new job. Are we all just greedy or is there a bigger problem? Unfortunately the problem is big, bigger than what we can handle on our own. The problem is debt.

A popular solution to debt is debt consolidation, the theory that you can consolidate your debts together and pay less each month. Is getting out of debt really that easy?

Does Debt Consolidation Work?

There are many companies that offer debt consolidation as a way out of debt, but there must be a reason that they are in business themselves. Although debt consolidation looks like a good idea, it isn’t. You may pay lower payments but the interest rate hasn’t changed. The real deal is that the same amount of debt has been divided over a longer period of time.

You’re paying more money over a longer period of time. You’re in debt longer!
Debt consolidation may lower your payments, but don’t forget you’re also paying the debt consolidation company. Does it make sense to pay money to a company you don’t owe, to pay off debts you do owe to someone else?

Debt Consolidation Alternatives

An alternative offered by debt consolidation companies is getting a new loan to pay off existing debts. While this sounds like a good plan, you’re being charged a much higher interest rate for that loan. You still owe the same amount of money in addition to higher interest. It doesn’t make sense to pay more than you already are.

Maybe these debt consolidation companies don’t work, and you decide to do debt consolidation on your own. After all, there are plenty of credit card offers around (just check your mailbox) that offer zero percent interest rates on balance transfers. Although this is helps, it’s only a temporary solution. If you get denied for the new credit card, your credit rating takes a hit and you continue to look more like a credit risk. If you do get approved, the zero percent interest rate is just an introductory offer. After the specified time, you’re back to paying big payments.

Negotiating terms is another alternative that you can manage on your own. Call your credit card company and ask to speak to a manager/supervisor or tell them you want to close an account. The job of a closing specialist is to do everything within their power to keep you from closing your account. This is the most efficient way to lower your interest rates.

Why Debt Consolidation is No Deal at All


The truth is that debt consolidation is not a solution to anything at all. It’s a way for debt consolidation companies to take advantage of those who are already having trouble managing their money. Debt consolidation is a temporary answer to a permanent problem. It’s not the credit card or loan that’s causing the problem, it’s you! Why are you in debt in the first place? It’s your spending habits, not your debt consolidation methods that needs to be fixed.

Getting out of debt takes a plan and commitment to that plan. Let’s look at tips from money makeover guru Dave Ramsey. First, budget every dollar that comes in. Second, pay all minimum balances on credit cards while you save up a $1000 emergency fund. How much of your debt comes from an emergency repair? Start planning ahead to keep yourself out of further debt. Once your emergency fund is complete, use as much money as possible to pay off your smallest loan amount. Dave Ramsey calls this the debt snowball. Getting rid of that first debt makes you feel powerful and motivates you to keep going. You then take that money and add on to the minimum payment of the next smallest debt amount.

Other ‘at-home’ alternatives are to get side jobs such as delivering pizzas or freelance writing. Begin to sell unnecessary items around the house: dishes, appliances, cameras, clothes, tools, and etcetera. Hire yourself out for tutoring, baby-sitting, or writing. Bottom line, spend less than you make and run from debt consolidation companies. Start today!

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