The Benefits and Drawbacks of Debt Consolidation

So you’ve got a mountain of debt and you’re looking for a way out. Sweeping it all up into a debt consolidation loan seems like the most painless way to solve the problem,but before you sign on the dotted line,you need to know whether going through with debt consolidation is going to really help you or not.

The Benefits of Debt Consolidation

1) Instead of writing checks for all your separate bills every month (and remembering to write the bills),you have one bill to pay. If you have trouble remembering due dates and getting all your bills paid on time,debt consolidation can make your life a lot simpler.

Remember,every late payment can cost up to $40 or more,and late payments also do significant damage to your credit rating. Enough damage to your credit rating,and you’ll find your interest rates soaring.

2) If your credit is still good,you can probably get a lower rate on a debt consolidation loan than what you’re currently paying (especially if you have a lot of credit card debt). With the lower interest rate,more of your hard-earned money will go to paying down principle,so you’ll be out of debt sooner.

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The Drawbacks of Debt Consolidation

1) A debt consolidation loan won’t change your spending habits.Debt consolidation can fix the symptom: too much debt,but it can’t fix the underlying cause: You spend more than you earn. Unless you do debt consolidation along with a major change in how you spend (and,hopefully,earn) money,you will continue to rack up more debt.

2) If you do continue to rack up more debt,you will end up in more trouble than before you consolidated your debts.This second drawback to debt consolidation is a bit odd,but it happens to thousands of people: Debt consolidation can seem to make the debt problem disappear,but as soon as it’s “gone” they create a new debt disaster.

The recently-unburdened are suddenly paying less and are finally current on their bills. After all the debt-ridden days are over,it’s hard not to celebrate… by spending more money. So debt consolidation’s benefits can turn into major problems because they take the pressure off. For some of us,it’s the pressure of our existing debts that keeps our spending in line. Remove that pressure,and we go right back to overspending.

3) Getting a bad debt consolidation loan.Here is a short list of things to avoid in any debt consolidation loan.

– Variable rate. This means the interest rate can change any time. Which means that you could end up paying more than you do now.

– Two-cycle average daily balance. A credit card term that is not your friend.

– 20-day billing cycle (versus the standard 30-day billing cycle). Another credit card term that is not your friend.

– Finance company loans. Wolves in sheeps’ clothing.

– Any lender that offers you a large (over $5000) loan without a significant credit check,on the condition that you make a hefty fee up front.

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4) Falling for a debt consolidation scam.These aren’t just “bad” loans – they’re full-fledged fraud. The tricks include:

– Pretending to be a non-profit debt counseling service. If the lender won’t send you a copy of their IRS approval of non-profit status letter,move on.

– Saying they will negotiate a debt consolidation loan for you,so you can use the money to pay off your debts. They tell you to start sending them money every month. You send it. They don’t pay your creditors. You get deeper (MUCH deeper) in debt.

– Contacting you by mail or email,offering you the best deal you’ve ever heard of. If it sounds too good to be true,it is. Respectable finance firms do not send unsolicited email,or even direct mail. They get word of mouth referrals.

5) Getting a fair debt consolidation loan,but not changing your spending/saving/earning habits.This is the double-whammy of con #2. For example,say you take out 80% of the equity in your home to pay off your scorchingly high-interest credit cards. But then,instead of rigorously keeping to the budget you made up,you continue to buy things and you give in to all the new low interest credit card offers that come in the mail. You swear to yourself that the big raise will come any day and your income will double.

Instead,you get fired. Within two months (remember,you never saved any money) you can just barely pay your mortgage,much less your home equity loan,much less your new credit card bills. After a few late payments,the new credit card interest rates vault up to 30% or more,and you stop paying them altogether,along with the home equity loan. The bank can now take your house.

Compared to this scenario,it would have been better to have stayed under the old “mountain” of debt (which now,comparatively,looks like a small hill) and learned the slow,hard lessons of frugal living and finding happiness in life in ways that don’t require spending.

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Battler type 2: “The Misdirected” (Part 5)

might}bemisguidedintheirapproachtoachievingmonetarywealthistheleveltowhichtheyholdnegatingideasconcerningloan,spendingaswellaswealth.Contradictingideasdevelopemotionalstressandalsoproblemwithinthebattlerandmakeithardforthemtocometobecoincidingregardingaccomplishingmonetarysuccess.


Asanexample,ifsomebodypurposelyorunconsciouslythinksthetricktoobtainingrichistostriveaswellassavewhileatthesametimetheyalsobelievetheabundantgetricherandthebadgetpoorer,thenthispersonstaysinaninfiniteissue.Ononehanditseemstheyrequiretostriveandalsosaveinordertogetrich,yetgiventhattheyarenotalreadyabundantalltheycandoisgetpoorer.

Anotherinstancewouldcertainlybeiftheythought(consciouslyorunconsciously)thatinordertogenerateincomehonestlyyouhavetomakeitwhileattheexactsametimelikewisebelievingforsomebodytoobtainrichtheyneedtohavetippedonalotindividualsontheirmethodup.Thismighttriggerthecombatanttooncemoreworkhardinordertotruthfullygaintheirmoneyhoweverassoonastheystartmakingadecentincometheymightunconsciouslysabotagethemselvestoavoidbecomingoneofthoseabundantbastardswhosteponpeople.
Intheveryfirstinstance,thebattler‘snegatingbeliefsimmobilisehim/hertostaywheretheyarewiththeirfunds.TheyarecapturedinaCapture22wheretheyaredamnediftheydoaswellasdamnediftheydonot.Inthesecondinstance,thecombatanthastheabilitytoreachaminimaltomoderatedegreeofsuccessupuntilaself-sabotagingsystemstartstolimittheireconomicgrowth.

Anothervariationofcontradictingbeliefshappenswhenthebattlerisrevealedtothemeansofwiderangedevelopmentandfinancialinvestmentreasoning,Forinstance,acombatantmaythinkthatitmisbehavestobeintheredaswellastooweindividualsloan.Theyafterthataretoldthatinordertospendintelligentlytheyrequiretoborrowandmakeuseofotherpeople‘smoney(OPM).Ortheymaybelievethatittakescashtoearnmoneyandafterwardstheyaretoldthattheycanpurchaseresidentialpropertymakinguseofnocashoftheirveryown.
Exactlyhowdotheyunderstandthesecontradictingideas?Sadlyforthebattler,theyaremuchmoreaffectedbytheoldideastheyalreadyholdinsteadofthenewideasbeingintroducedtothem.Typically,theywilleithertotallydismissthebrand-newideasandconsequentlygetridoftheopposition,ortheywillcertainlyofferthenewideasmarginalsupportwhilemaintainingconvictionfortheircurrentbeliefs.Regardless,thecombatantstillstayswheretheyarewiththeirfinancialstanding.

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SummaryoftheMisdirectedBattler


IncontrasttotheObliviousBattlerwhodoesnotspendtodevelopwealthmerelysincethewholelocationofwealthdevelopmentisnormallyoutsidetheireverydayrecognition,theMisguidedBattlerdoesnotspendtoproducerichessincetheirperspective,attitudeandalsoideasaboutrichescreationarebaseduponwrongassumptions,incorrectinformationandalsomalfunctioningproperties.

AsignificantsecretfortheMisguidedCombatantistobecomeun-misguided.Toaccomplishthis,theyshouldagreetounlearneveryoneofthemisinformationtheyhaveactuallybeenconditionedtobelieveformanyyears.Thisneedsamixofself-awarenessofone‘sownconditioningaswellastheaidandalsoassistanceofaskilledrichestrainerandalsomentor.

In 1871,a massive fire in Downtown Chicago wiped out many of the city’s most cherished buildings and homes,forcing parts of the city to start all over with building out a city that could be used for generations to come. The Great Chicago Fire defined the city,and that area has lived in infamy since. But just a few blocks from where this fire began more than 100 years ago is the site of a new construction boom.

In The Loop neighborhood in Chicago,the southwest section has long felt like a bit of a dead-zone,with many tenants deciding to live in other areas of the Loop instead. But over the past year or so,many people have been flocking to the area,dumping nearly $2 billion into the area for redevelopment projects and various other business ventures. The site is located near Chicago’s famous Willis Tower,Union Station and the Old Post Office.

In just the last seven months,more than 1,000,000 square-feet have been leased in the area,with plenty more contracts still waiting to be signed as the expansion continues. Many residents who live in nearby complexes like AMLI and other business apartments will start to see some new neighbors in The Loop,but that’s not necessarily a bad things. In fact,it’s a great thing.

Many of the biggest investments into Chicago in the past decade have gone to the West Loop or other areas,but with this revitalization,many in the area are going to see many new places to eat,see and drink where they live.

“This is a resurgence of that part of the Loop,” Ari Klein a veteran tenant rep at Cushman & Wakefield,said to a local Chicago publication. “What’s old is new again,and that’s really cool to see.”

The Disadvantages Of Debt Consolidation And How They Differ From One Another

You will have no problem at all finding thousands of pages on the internet extolling the virtues of debt consolidation,but that is because they are all by people who are selling it as a service and therefore have a vested interest in pointing out the positive side. Getting to know what the possible disadvantage of debt consolidation can be is an altogether more difficult business,which is where this article comes in.

The first thing to say is that there is more than one type of debt consolidation,and the disadvantages are different with each one,so we will consider them separately. One form of consolidation is to take out a new loan in order to pay off all your debts. These are known as debt consolidation loans. The other way to consolidate debts is by using a debt management plan.

When you take out a new loan to pay off your debts,you are already at a disadvantage,because the very idea of taking on new debt is a risky strategy. Using a loan will certainly consolidate your debts,because you only have one single payment to think about,but it is very easy to end up worse off if you are not very careful.

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Many people take the advice of the potential lender at face value and look at the single smaller monthly payment as an indication that they will be better off. A lower monthly payment does not necessarily mean that a new loan is going to cost you less than your old debts. The reason most payments for consolidation loans are lower is that the loan is for a much longer period than your other debts were. In many cases if you add up the total that you will have paid by the time your new loan is paid back you will find that it has cost you far more than your old debts would have.

There is another disadvantage of debt consolidation with a loan if you are not very careful about which debts you consolidate. A lender will want you to include all your current debts and take out a loan big enough to pay off everything you currently owe. That can be tempting because the simplicity of a single payment is one of the attractions of debt consolidation,but you need to be very careful or you can end up costing yourself more.

What frequently happens is that people include all their debts,some of which may actually be at very low rates of interest. If you do not check whether the new loan is at a lower rate than the debts you are paying off,you may in effect be swapping some of your debts for more expensive ones. Before agreeing which debts to consolidate you should list out all your debts with the corresponding interest rates that you are currently paying. Check the interest rate for the new consolidation loan and only include in it those debts that are at a higher rate of interest.

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There are so many disadvantages with debt consolidation through a loan that the vast majority of situations are better dealt with through a debt management plan (DMP). In case you are not aware of how a DMP works,an experienced debt advisor negotiates with all your creditors and tries to set up new arrangements for paying back your debts. The idea is to reduce the amount you have to pay out each month by getting reductions in interest rates and other charges,which often includes writing off any penalty fees or extra charges.

When these negotiations are complete,you just make one single payment to the debt company and they have to deal with your creditors for you. You immediately avoid the big disadvantage of a debt consolidation loan,as there is no new borrowing involved,and the debt company often provide additional free services such as help with budget planning and tips for spending less.

A disadvantage of debt consolidation through a DMP is that they are only informal agreements,so you cannot force any creditor to participate if they do not want to. While many see this informality as a positive aspect of debt management,because it means you can change or get out of the agreement if your circumstances should alter,it does have a negative side too. There is no formal protection with a DMP,so if a creditor decides they want to take you to court instead,there is nothing in the debt consolidation process that can stop them.

The other disadvantage of debt consolidation through a DMP is that there are fees involved. All debt management companies have to charge for their services,and these are usually built into the payments you make. You could arguably save on these if you undertook the negotiation process yourself,but most people would not feel capable of doing that and in any event you would lose part of the benefit in not having to deal with all your different creditors payments.

The most important aspect of debt consolidation is to get reliable advice from a reputable company,so that you are advised properly on which route is going to work best for you. It is easy to apply quickly to several companies and compare the proposals and recommendations that come back. Start with a list of recommended companies that have a proven track record.Eliminate Debt Today!