What's all this about consumer credit debt consolidation?
Because almost every American is in debt to a certain degree, there are several options for debt consolidation. One of those options is to initiate a brand-new first mortgage, and consolidate your old mortgage with the rest of your consumer debts.
"Credit buying is much like being drunk.
The buzz happens immediately and gives you a lift....
The hangover comes the day after.”
- Joyce Brothers |
This option can be an immensely useful way in order to lower your monthly debt payment and to manage all of what you owe to various lending institutions. You may also benefit from a lower interest rate and less in monthly fees.
However, there are some pitfalls with consumer credit debt consolidation plans like these. If you don't close your existing credit accounts, you'll only be tempted to use them again - which would defeat the whole purpose of your debt consolidation.
Debt consolidation, in whatever form, should only be done once - and one time only! Otherwise, you'll know you are slowly but surely heading right toward your nearest bankruptcy court.
There is no real reason to keep those old accounts open once you pay them off. What typically occurs if you don't close the accounts is eventually you begin to use them again and they keep you trapped in an irresistible cycle of revolving debt.
In order to use consumer credit debt consolidation to your advantage, you must get rid of these other credit accounts and instead completely focus on what type of new mortgage you plan to get. You want to make sure that your new mortgage offers you a low monthly payment with a fixed interest rate.
Ideally, you should go with a 15 year mortgage with a fixed rate, but many will opt for a 30 year mortgage in order to receive a lower monthly payment. If you choose a 30 year term, plan to make one or two extra payments each year in order to have it pay off sometime between 12-20 years, rather than 30 years.
Remember, all that debt you just consolidated into this new loan was made up of dining out, new cars, and all kinds of STUFF. Do you really want to be paying on those items for the next 30 years? Absolutely not.
It's important that you pay down your new loan as quickly as you can. Each month, budget enough money to pay a little extra on the principle. It may feel like you're losing money in the short term, but the truth is you're saving a huge amount of money in the long term.
So when you've got some extra bucks in your bank account, use it to pay off your debt, not to buy a new frivolous items for your house.
It's very helpful to only have one or two monthly payments to deal with - especially if those payments are affordable! Understand, however, that unless you denounce normal credit spending, consumer credit debt consolidation will be no friend to you; in fact, it will only make things worse.
So if you want to tame your mortgage and your debt, do so! Just approach this goal with caution, good planning and self-discipline.
"It's not your salary that makes you rich,
it's your spending habits."
- Charles A. Jaffe |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
