Debt consolidation is often touted as the perfect solution to financial difficulties. In fact, though it can help with temporary difficulty, it is far from being the perfect solution. It can be a salvation when things get so tight that it is impossible to make minimum payments, but should not be considered the solution of first choice.

When a person has several small debts, each with a minimum payment, the overall monthly obligation an get to be quite a lot. The obligation on several small ones can a higher percentage than a larger one. Thus, when payments get to be more than a person can handle, combining them into one loan can result in a much lower payment that the combination of several smaller ones.

Many who use this method of managing their finances think they have done something to improve their problem, but in fact they have not. They haven\’t lessened the overall amount at all. In fact, if anything, they have increased it. They may well have decreased the monthly payments, but have definitely extended the length of the loan, and may have well increased the overall interest. So, instead of improving the situation, they have made it worse.

Estimates have been presented that over 75% of the time, the person who consolidates loans often finds themselves in the same situation again within months. The reason is that there has not been a plan made for paying cash for purchases, and no plan made to decrease impulse spending. Thus, the relief that comes from consolidating is quickly reinstated.

In some circumstances such a plan may actually be a financially advantageous decision. For example, when the person has a lot of credit card debts, the interest rate is way higher than even an unsecured loan will have. In this case, even though the term of the loan is longer, meaning more interest, the lesser rate offsets the length of the loan.

It is possible to use this method of lowering payments in a beneficial way. But, the person needs to be very careful and follow a strict plan. The way to make the best use of such a loan is to first develop a budget that allows spending to be less than the income. This plan must include ideas of getting and staying out of debt. Then, it is essential to follow the plan strictly. In this way, the debt will be decreasing and no new ones will be made. The budget is designed to allow payment of all expenses in cash.

There are several indications that you may need to consolidate. These include taking out payday loans to pay off payday loans you have previously acquired. If you are taking out credit cards to pay off huge bills or to pay off other credit cards, you are a good candidate for consolidating your loans. Also, using credit cards to pay for regular monthly expenses is a danger signal, and may indicate that a consolidation loan might help to get out of that cycle.

Debt consolidation is not the ideal solution to financial troubles and excessive loans. It is usually a dangerous position to get into, unless you have credit counseling. But, with this counseling and a plan to stay within your income means, it may well be the solution to get over a bad financial hump.

Having money problems? We can help you resolve your debt problems with free advice on Les Problemes d\’argent and Conciliation de dette.

Having money problems? We can help you resolve your debt problems with free advice on debt consolidation and debt conciliation.
http://www.sosdettes.ca/

Author Bio: Having money problems? We can help you resolve your debt problems with free advice on Les Problemes d\’argent and Conciliation de dette.

Category: Finances
Keywords: debt, loan, consolidation, finance, business, family, economics, society