Should You Use Debt Consolidation To Relieve Your Consumer Debt?

That would have to be a good thing... wouldn't it?

Hmmm... well perhaps... but not necessarily.

The real answer to that question... is not as "cut and dried" as it might seem.

And even though it will often times... get you a lower interest rate.

That does not automatically mean that it is... therefore... in your best interest to consolidate your debts.

You must know more... in order to make a smart decision.

And yet... rate and payment are the only criteria... used by most people... to determine whether they should obtain a debt consolidation loan or not.

If the payment is smaller and the interest sounds "about right"... then count us in.

Am I right? Sound familiar?

This is how we have been taught... by society... to evaluate our financial moves.

And as a result... most of us have made many mistakes when it comes to our personal financial choices.

The truth is... debt consolidation may actually be financially dangerous.

It is dangerous for you to think that you have actually... "done something" about your debt. When in fact... you have really only re-arranged it.

The danger lies in your new mentality... in regard to your debt.

You feel better about it now. The load feels lighter. You compliment yourself for your debt management ability.

It feels like your financial load is lighter and soon you begin thinking of buying something else with borrowed money.

You say to yourself... why not, I can afford it.

Sound familiar?

We have all... done this dance.

Most people (nearly 80%) after consolidating... end up going out and creating more debt.

Sorry to bring this up, but...

Your debt is still there. It has not been reduced.

Your spending habits are still the same. In fact... they are the real reason you have the debt to start with.

Nothing has really changed.

Except that now... you will likely pay more interest than you would have prior to consolidating and you will be in debt for a longer period of time.

Suppose you have the following unsecured debt:

• A 2-year loan for $10,000 at 12% with a monthly payment of $517.
• A 4-year loan for $20,000 at 10% with a monthly payment of $583.
• The combined total monthly payment amount is therefore $1,100.

The loan company tells you that they can lower your total payment to $640 per month and lower your interest rate to 9% by combining your previous loans into one.

Wow! That sounds great... doesn't it?

$460 less per month in payments. Yes!!

If that doesn't make you a fan of this debt consolidation concept... then I don't know what will.

But wait... perhaps we should look a little closer.

• Did they tell you that it will now take you 6 years to pay off the new loan?
• Do you realize that you will now pay a total of $46,080 to pay off the new loan compared to $40,392 total for the original loans?
• Even at the lower interest rate of 9%.

So the net effect of your loan consolidation strategy is...

You lengthened your payoff time by 2 years and you increased the amount of interest you will pay by $5,688.

This very common scenario is played out over and over in the lives of literally millions of families.

Cash flow gets tight, consolidate, and then go make more debt.

The undeniable truth is...

There is no quick and easy way to get out of debt.

Financial author, Larry Burkett says... debt is not the problem...it is the symptom.

Debt is the symptom of overspending and under saving.

Until you finally come to terms with this fact... you will likely repeat the above scenario over and over in your life.

You may never experience the freedom, the peace, and the joy... of debt free living.

It is all in your head... it's emotional.

It's the person in the mirror who holds the key to debt freedom.

• Commit to being aggressively proactive and taking control of your finances.
• Clarify "what is really important" to you.
• Create a written personal financial strategy or game plan.
• Know where all of your money is going.
• Get an extra job in order to help pay off your debt faster.
• Live on less than you make.

As Dave Ramsey says... "act your wage".

Such steps represent "real change"... not mere re-arrangement... and will end the dynamic that has kept you in debt for so long.

The answer is... "conditionally" yes.

• If you have clarified "what is really important" to you.
  I mean what is it... that "really" matters to you?
  I promise you... it is not money.
• If you have created a written personal financial strategy.
• If you know... without a doubt... where all of your money goes.
• If you know you are not wasting money anywhere.
• If you are in control of your spending by scrutinizing every dollar you spend... before you spend it.
• If you already have an extra job.
• If you have sold all the stuff that you don't really need (automobiles, boats, rv's, motorcycles, etc., etc.) and applied those dollars to your debt.
• If you have tried debt negotiation with your creditors.

Only after you have done all of the above.

If you still cannot "cash flow".

Then and only then... given the above conditions... could it make sense to "consider" a debt relief consolidation loan.

But... even so... only if...

You are fully, truly, and totally certain... beyond any doubt... that you
will not allow yourself (or your spouse) to go and create more debt.

If you do meet the above criteria and so decide to consolidate your debt with a new loan.

Do not fail... to take advantage of the "freed up" cash.

Put it to work... for you and your family.

• Start an emergency fund if you don't already have one.
  If you already do... fund it more aggressively until you have $1,000 minimum.
• Get enough life insurance on yourself and your spouse to adequately protect yourselves and your family.
• Get long term care insurance if you are in your late 40's or early 50's or older.

Whatever you do... don't waste the "freed up" cash... and do not create more debt.

Is debt consolidation really right for you?

Is debt consolidation the best way to relieve your consumer debt?

For most... the answer is no.

However, it ultimately depends... on You!

How well do you know yourself? How much do you trust yourself? Can you... and will you... be honest with yourself?

• Is the urgency of your cash flow situation enough to justify the additional interest (in dollars, not in rate) you will likely pay with a consolidation loan?
• Are you OK that it will take you longer to become debt free?
• Are you clear about the danger of creating more debt?

Debt consolidation... is probably not the answer.

The person in the mirror holds the key to debt freedom.

"Because It Matters"... Jim