Many people find that over time they have accumulated more debt than they can repay. When that happens, there is a reinforcing downward spiral. The inability to repay the debt leads to additional interest charges and penalties, making it still harder to repay the amount owed.
One common suggestion for breaking this vicious circle is to employ debt consolidation. For thousands, this has seemed like the way out, the way back to financial health. But there are pros and cons to debt consolidation, no matter what form it takes. Being aware of those will help you decide if it is the salvation in your particular circumstances.
First, what is 'debt consolidation'? At base, it's a simple proposition. Gather all your multiple sources of debt into one debt and make a single payment every month to a single debtor.
However for this to be beneficial some factors come into play. If your single payment adds up to the same amount as your multiple payments you haven't benefitted yourself at all. Since most of us utilize the internet to pay our bills, you won't even save on the cost of checks of postage.
In order for debt consolidation to be useful one or more of the following has to occur: (1) either the total monthly payment has to decrease , or, (2) the net amount of interest has to decrease, or, (3) the actual total debt has to go down as a result of consolidation. Which, if any, of these take place depends on the specific debt consolidation plan you have planned.
Best case scenario is for all three to be the case, but this is rarely possible. Normally there is a decrease in your monthly payment. This is helpful because it gives you the ability to meet the payment obligations every month.
That helps prevent piling more debt (interest and late charges) onto existing debt. You also have a much more relaxed frame of mind, knowing you can meet the monthly debt obligation without sacrificing other needed items.
The down side to this is that a lower payment can feed the faulty mentality that led to being overcome with debt from the beginning. You have extra money in your pocket and begin to think there's no need to be concerned. You can revert back to a laid back attitude toward spending. Being overly concerned is not good. But a lack of concern can work against your ultimate goal of freeing yourself of debt.
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