While it is an effective way to get out of a bad credit situation, debt consolidation loans may not always be the best solution to your problem.
But then again, why do people get into trouble with debt? It’s because they’re continually spending more money than they earn. Does that sound too simplistic? It might but it’s a fact. If you earn $3,000 a month but continually spend $3,500 a month, you’ll eventually have a problem on your hands. You’ll owe $6,000 at the end of 12 months and if you don’t do something about this, things will only get worse.
Do you know where your money’s going?
Before considering debt consolidation loans, you need to figure out how your money is being spent. If you’re struggling with debt, do you know why? In other words, do you know where your money’s going? If not, you need to find out. You should keep careful track of all your spending for 30 days then sit down and divide everything into logical categories such as insurance, transportation, food, entertainment, and so forth. You may be shocked at what you learn. But at least you’ll now know where your money’s going and why you’re having a problem with debt.
Reduce your spending
Again this may seem too simplistic but the first thing you need to do to get your debt under control is reduce your spending until it’s less than your earnings. Going back to the example I gave in the first paragraph, if you’re spending $500 a month more than you earn, you need to find some way to cut your spending by at least $500. I can’t tell you precisely how to do this but you should first focus on your discretionary spending categories such as food, entertainment, and clothing.
Start working on your debt
Ideally, if you’re spending $500 more a month than you earn, you should find ways to reduce your spending by at least $700 a month so you will have money to pay down your debt.
However, If you’re seriously in debt then paying it down at the rate of several hundred dollars a month might not be the answer. For example, if you owed $10,000, it would take you nearly 5 years to pay it off – not counting the interest costs.
Debt consolidation loans
Many families have turned to a debt consolidation loan in order to get their debts under control. However, many financial experts consider debt consolidation loans to be nothing more than a con job because they can give you the feeling that you’ve done something about your debt problem but you really haven’t. All you’ve done is move your debts from one set of creditors to a new one –the bank or credit union where you got the loan. Plus, as the old adage goes, you can’t borrow your way out of debt.
Why say “no” to debt consolidation loans
The biggest problem with a debt consolidation loan is that about 78% of the time people who consolidate their credit card debts see them grow back or even get worse. Why is this? It’s either because people can’t handle credit, didn’t make a budget, couldn’t stick to their budget or failed to save for those “surprise events,” which turned into debt.
Why a debt consolidation loan actually costs more
While a debt consolidation loan might seem like a good idea because it has a lower interest rate, it’s not because your interest cost is actually lower. It’s because you’re taking longer to pay back the loan. In other words, you might have a lower payment but you stay in debt longer and pay the lender more – which is why it’s in the debt consolidation loan business.
A better alternative
Thousands of American families have found that debt settlement is a better solution than a debt consolidation loan. This is because debt settlement is the only way to reduce both your interest rates and balances to help you become debt free much quicker than with a debt consolidation loan. Our debt settlement experts are usually able to save our clients thousands of dollars and help them become debt free in 24 to 48 months. Call our toll-free number today to learn how debt settlement might help you.