Consolidating Bad Debt And Why
CONSOLIDATING BAD DEBT STRATGEY
Consolidation is a great way to reduce debt. It’s not as good as simply paying off your debt but it can be good for several reasons. If you get a good consolidation loan, it’ll be for a lot less interest each month. Some people decide to consolidate or refinance debts to have lower monthly payments. By doing this, you will relieve yourself of some stress and free up more disposable income but you are just moving debts around instead of removing them.
Instead of doing a debt consolidation for a lower monthly payment, why not do it at the same amount of money you are paying today but with the benefit of:
1. A lower interest rate
2. One date to pay it each month instead of several with multiple bills.
A lower interest rate allows more of your payment to go towards the debt itself.
Beware of the consolidation trap!
The consolidation trap happens to many good people who don’t take care and caution with their finances. They consolidate all their credit cards and loan payments into a single payment but instead of taking that opportunity to get ahead of the game; they simply rack up more debt. They’re enamoured by the sudden $0 balance on their credit card and instead of cutting up the card or saving it for emergencies only, the begin the old cycle of spending money they don’t have. Now, they’ve got a big consolidation loan and more debt on top of that.
Use the consolidation or refinancing loan as a way to get ahead of the game and pay off your debt instead of creating more debt.
