Debt consolidation is a debt relief option can definitely help you save money on interest, and there’s one smaller payment too! But does it treat your debt problems? No, it treats the symptom-and helps you get back on track, but without proper money management strategies, you may end up getting into a cycle of debt all over again. That’s why it is important to look for a lender, like ALC Commercial that helps you pay off your loans and emphasises the importance of debt management strategies at the same time.
Debt consolidation helps you start with a clean slate-although the debts are still there, they become more manageable than having several debts with different due dates. But the fact remains—the debts are still there, they are not going anywhere unless you pay them off and change your borrowing and spending habits. Some people think that borrowing their way out of debt is the best solution. Yes, it is a solution-in fact, a very practical one, but if you keep on digging out the bottom, you will eventually get back where you have started; and maybe, in an even worse situation, especially when you cannot curb spending.
When do we recommend debt consolidation?
Anytime. It is a practical way out of debt, an easier way to manage your debts and an easy way to free up some cash for your other needs. But there are things that you need to know first about debt consolidation so you can use it wisely, without abusing it.
What does debt consolidation really stand for?
Consolidating the debt to one payment simply means that you are taking out one loan to pay off several loans. It is recommended for people with high consumer debt.
Does it prevent your debt from going back?
Well, it depends. Some people’s debts grow back after someone consolidates their debt because they don’t have a spending plan. They don’t understand the importance of having a plan on how to pay cash to every purchase and spend less on daily needs. They also fail to set up an emergency fund to pay for all the “unexpected events,” like accidents, hospitalisation, special occasions, education and the like. These unexpected expenses will eventually become debts as well, in the absence of an emergency fund.
In other words, if you have not yet established good money habits that can help you stay out of debt and you haven’t started a game plan to build wealth, you have a good chance of plunging back into debt. For debt consolidation to get you out of debt, you also need to change your behaviour when it comes to money.
A lower interest rate doesn’t necessarily mean you are saving up on the total cost of the loan. It simply means, getting a lower interest for a longer loan term.
True, you can enjoy a lower interest rate and a lower payment. But, remember that in most cases, the term gets extended that is why you are getting lower payment terms. The debt is still the same, it was not lessened. That means, you get to stay in debt longer and the lender gets more money from you. There are also times that the interest is actually higher and you have to pay more in the long run.
But, if you consider the number of times that you defaulted on your payment on high-interest loans, then you can really save money. For example, if you have three high-interest credit cards that charge late fees every time you miss a payment, imagine how much you are able to save by paying them all off.
What is the genuine way to get out of debt?
The answer is debt consolidation plus money management. If used wisely, debt consolidation can save you up to 50% on interests. But, that’s not the end of it. There is a need for borrowers with bad credit to change the way they view money. They can only get out of debt the moment they change their money habits. The moment you commit to getting on a debt management plan and you stick to it, is the only time you can really expect a change in your finances.
You don’t have to stay away from debts entirely. You just have to use a debt consolidation loan as a tool to have a clean slate, start all over again and become responsible for repaying loans. You have to be careful when choosing to incur new financial obligations. If you can’t understand the terms of the loan agreement, don’t sign it. Some lenders hide interests and charges in the loan contract and you will be surprised how much the debts can grow over time.
If you don’t know to start off in paying your debts through debt consolidation and money management strategies, contact us.