Our 2 Cents

Will Debt Consolidation Make the Problem Worse?

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With so many competing opinions out there about debt relief, it’s hard to determine which route is the best to take when trying to resolve debt. The truth is – there isn’t one “best way” to do it. It really depends on your specific situation and what goals you are trying to achieve.

One of the most popular questions people ask us is, “Will debt consolidation help? I want to get rid of my debt fast.” Well, it may or it may not. There isn’t a one word answer for that. It may not be the fastest method though. You have to remember that debt consolidation in and of itself does not do anything to resolve the underlying debt problem. In fact, all it does is move debt around! By shuffling your debt, you may not be tackling the main issue.

The only way to resolve debt once and for all is to change your habits. Without making a lifestyle change to spend less and save more, you will always be stuck in the nasty cycle of debt, no matter which debt relief option you choose to take. Keep in mind that true debt relief is not easy. In fact, it is a lifelong commitment you need to make.

Although debt consolidation isn’t a solution for resolving debt in every circumstance, it may help in certain cases. For some, it may be the vehicle they need to get on track to a better financial future. However, this will only work if you are disciplined enough to change your behavior so that you don’t fall into debt again. If you have a relatively small debt amount (less than $10,000), debt consolidation may be an option to consider.

In debt consolidation, there are 2 main types of loans: secured loans and unsecured loans. Secured loans are backed by an asset you own (i.e. your house or car are used as collateral). You are basically agreeing to give up your asset if you fail to repay your loan. This lessens the risk for the lender and places more risk on you. Unless you are absolutely positive that you will be able to make your payments on time and pay back the entire loan, you probably don’t want to even think about taking out a secured loan!

Now, let’s discuss unsecured loans. Not everyone has property or cars that they can put up for collateral, so they’ll look for lenders who are willing to offer unsecured loans. Since the lenders have little more than your written promise to pay them back, they’re essentially taking on all of the risk. Because of that, you may not get a very good interest rate. If you think about it – a higher interest rate plus a longer repayment schedule equals a lot of extra money that you need to pay back. This is something you need to weigh out before selecting a debt relief option.

My advice: Try to resolve your debt as quickly as possible. The longer you have debt, the more it ends up costing you.

If you are genuinely interested in resolving debt once and for all, the answer is to do a complete financial overhaul. You need to change your money habits, come up with a manageable spending plan, and stay on track to reduce your debt!

For more information on debt consolidation and other debt relief options, check out Freedom’s Debt Relief Guide. Make sure to read up on all of your options before making the decision that’s right for you!

If you need any help, give us a call at 1(800) 544-7211 (The consultation is totally free!). We’d be glad to help you assess your situation and walk you through your options.

Wishing You All the Best,
The Freedom Family

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About the Author:

Tammi Huang is a marketing communications professional and an avid blogger. When not reading industry news or drafting killer content, she enjoys traveling, exercising, and exploring all that the San Francisco Bay Area has to offer.