By definition debt consolidation is talking out a loan to pay off other loans/debts. We’ve all heard of the saying, “robbing Peter to pay Paul.” This was often thought of as a way to “Get out” of financial debt, debt consolidation will in reality add to your financial debt. Yes you will combine all your payments into one payment; however, most of the time it would cost less by simply paying off all the other loan payments. The problem is that when you consolidate all your debt into one payment two things happen. The first thing that happens is you’re charged a higher amount of interested on the one payment. Which usually means you would have saved money if you didn’t consolidate your loans. Generally you will also be paying longer on a consolidation loan. The longer the time larger interest amount will usually be paid. You do the math!
There are also fees that come with debt consolidation. These are usually in the form of monthly fees paid on top of your debt. Up front fees can vary depending on the company you pick to help you with the consolidation. The second problem with debt consolidation is if you consolidate all your loans into one smaller monthly payment, you will think you have more money at the end of the month. And unfortunately you will most likely spend that money on something else. When in actuality, you should save that money, or put it towards the debt you want to pay off.
But saving money isn’t what got you into this mess in the first place. Most likely you will spend the extra money on more stuff you don’t need. The majority of people are in this position of needing to consolidate their debt because of credit cards. Once you consolidate all your credit cards into one payment, the other credit cards will be empty. Therefore, you should put all those cards together and hide them! Not from your spouse, or your children, but from yourself. If you keep them where you can have easy access to them you’re asking for trouble. All it takes is for you to use one of those credit cards. I suggest you cut them up. Yes I said cut them and no I’m not crazy. I didn’t say close them; as this will damage your credit. However, if you don’t stop and change your spending habits you will never get out of debt. It is way too easy to go into a store, get to the register and simply pull out a credit card. Most people don’t think before they do this.
If you are really ready to debt consolidate your bills then be ready to give up the credit cards. Start focusing on the needs! Not the wants.