Debt is never pretty; whether big or small, it pulls you down and brings about many changes in your life, most of which are negative. You may try to evade it and hide from it all you can, but in the end, it catches up with you and wreaks havoc in more ways than one.
The best way to deal with debt is head on – you must control it before it takes control over your life; and the only way to do this is to pay them off immediately. However, if you’re really deep in debt and looking for a way out, debt consolidation is one option. It has many advantages:
- Instead of having to keep track of many debts and various interest rates, you have just one lump sum to pay off at one interest rate.
- You get a lower interest rate.
- You pay a smaller amount every month because the amount to be repaid is spread over a longer period of time.
- You save yourself from the fines, hassles, harassment and embarrassment that go hand in hand with being in debt
However, in spite of all these benefits, it is wise to go in for debt consolidation only if:
- You are prepared to accept the responsibility that debt entails and are serious about paying it back; if you go back to your spendthrift ways thinking that you’ve avoided paying what you own, you’re going to end up with a very bad credit score and may even have to file for bankruptcy in order to get your finances in order
- The interest rate is less than what you’ve been paying so far – there’s no use consolidating your debts if you’re going to be paying higher interest. Calculate the interest you’re currently paying (add the amount for all your loans) and consolidate your loans only if this figure is higher than the interest you have to pay on your consolidated loan.
- Some people choose to refinance their homes and take out a second mortgage in order to consolidate their credit card and other unsecured debt. When you change unsecured to secured debt, you’re in danger of losing your assets. And when it’s your home that’s under the hammer, you could just be facing a foreclosure if you’re not able to pay off your outstanding amount every month
- If your debt problems are recent and if you don’t really have a problem spending money wisely, then consolidation may not be a good idea because you end up paying much more when you consolidate, and you also have the burden of debt for a longer period of time. Instead, try to borrow some time from your lenders so you can pay your debt after a month or so; don’t go in for debt consolidation immediately or as the first recourse
This guest post is contributed by Mark Macaluso, he writes on the topic of Masters in Accounting Programs . He welcomes your comments at his email id: mark.macaluso985<@>gmail<.>com.