Debt relief consolidation looks very attractive when you're drowning in debt and can't see a way out.
It looks like an easy way out of a difficult, harrowing situation. You just roll all of your debts into "one easy payment" that you can manage and your problems are solved. Isn't that precisely what they tell you?
"Probably the very best thing my earnings
have given me - is absense of worry.
I have not forgotten what it feels like to worry
whether you'll have enough to pay the bills.
Not to have to think about that any more
is the biggest luxury in the world.”
- J.K. Rowling |
Unfortunately, it rarely works that way. Consolidation loans often cost more in the long run and keep you in debt longer than if you had just stuck it out and paid off your original debts.
More importantly, consolidation doesn't fix the problem that got you in debt in the first place. A large majority of people who get a debt relief consolidation loan continue to use credit inappropriately and wind up right back in the same overwhelming financial situation within a few short years.
Hidden Costs and Long Loan Terms
Consolidation loans are not usually a good idea, and people who market debt relief consolidation are not always ethical lenders.
It's not unusual to discover hidden fees and penalties in the fine print of your loan papers. Your monthly payments will be lowered - that's the whole point of getting a consolidation loan, but the loan will probably wind up costing you more in the long run.
If you are struggling financially, the lender can make a consolidation loan look attractive by offering "no up-front fees." The fees will still be there; they will just be added into the loan. You may be charged hundreds or even thousands of dollars in loan origination fees and other fees
In order to decrease your monthly payments, the loan has to be spread out over a longer period of time. Even if you get a good interest rate, you'll be paying it for a longer term, so you'll probably wind up paying substantially more in the long run.
The Problems Underneath the Problem
Few people get into financial trouble only because of things outside their control. Emergency expenses, job loss and other situations are challenging for anybody, but they are catastrophic for people who perpetually live at the edge of their income.
Most people get into trouble because they do not know how to live within their means and they fail to save enough for emergencies.
There are real problems underneath their inability to manage their finances. They may not have the self-discipline to delay getting things they want. They may feel safer and more secure when they buy things.
They may mistakenly equate buying things with success.
If you don't deal with the underlying issues, you can bet that you'll continue to spend more than you can afford. That's the real reason that debt relief consolidation rarely helps for very long.
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"Who goes a-borrowing goeth a-sorrowing."
- Thomas Tusser |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
