If your philosophy with money management until this point has been “why do today what you can put off until tomorrow,” you may find yourself in a bit of a financial quandary.
If you find that you are getting overwhelmed by the multiple debts from personal loans, credit cards and car financing, then you may consider borrowing one lump sum of money to pay off those expenses. Then you can target all your energy into aggressively paying off that new larger sum you borrowed in order to better manage the trifling of smaller debt. That act is debt consolidation.
What is debt consolidation?
Debt consolidation is a way to compile all your existing debt into one neat package by taking out one loan to pay off many others. The process of debt consolidation can make the multitude of payments easier to handle while reducing the monthly payments you have to make to pay off your creditors. However, since the payment plan for the debt consolidation loan is generally extended over a longer period of time, and there may be loan origination fees and other additional charges, it is a costly endeavor to pursue.
Educate yourself first
Before you decide to opt into debt consolidation, you need to fully educate yourself not only on the positive but the negative risks you are taking. On average 70% percent of Americans who take out a debt consolidation loan of sorts, actually end up with the same (and sometimes higher) debt amount over a two year period. The debt consolidation loan will only act as a bandage to the debt wound if you do not modify your behavior to clear up your negative balances.
If you are going to take advantage of debt consolidation, make sure to pay off the loan on time. Additionally it is important to stop participating in the events that lead you down this path in the first place. Start living below your means and using cash instead of credit. That way you can reduce your risk of become a scary debt consolidation statistic.