Many people talk about debt consolidation as a solution to their debt problems.
However, most of the time is an empty promise that by not solve the root cause, ends up generating more problems.
What is debt consolidation?
Debt consolidation involves some way, take a loan and the amount thereof, liquidate all the others that we have in place. That is, we change all our debts by one.
For this to be meaningful, the new debt should have an interest rate significantly lower than that of credit we had. And of course: the amount we pay each month should also be much lower, so that we can be a little less crowded in our cash flow .
The problem is that this happens rarely. If we are mired in debt, as the saying goes, it is very difficult to get a loan sufficient to p oder to pay all other debts we have. In addition, if we can get it, it is very unlikely to be at a lower interest rate because we represent a risk to the institution that gives us the money.
Finally, the new debt we have acquired has to be a long term so that it can actually lead to a lower monthly payment to what we had before debt consolidation.
Why Debt Consolidation is the solution?
People with severe debt problems, usually because they acquired him for several months – or years – is accustomed to spending more than they earn. That is, the money they receive is not enough to live, and therefore have to fall back on credit to get ahead .
Debt consolidation does not solve this – it is simply a change various credits . The underlying problem, the reason we fell into a severe debt problem , still there. And this can be very dangerous.
I have had to see several cases of people who managed to consolidate their debts but continued to use their credit cards: those who paid with the amount of new loan obtained for consolidation.
So stay with a large debt – consolidated – but begin to acquire other from the use – again – to their credit cards .
Many readers might think this is very innocent and very little happens. Well I’ve seen: it happens much more often than they realize. The reason is very simple, and commented: people are already accustomed to spending more than they earn . Usually unable to meet their needs – and the consolidated debt – with the income they have.
So they are forced to dip back into your credit cards , which makes your problem grow and get out of control again. There is even a case very close friends who consolidated their debts through a mortgage liquidity. But again use their credit cards and were gradually falling into a huge problem. Now they have a high risk of losing their homes: they are struggling a lot to keep paying that mortgage.
