On the surface, using debt loans as a means of reducing your debt seems like a 'no-brainer'. They can be used to lower your interest rates, lower your monthly payments and provide you with the convenience of only making one debt payment each month. But have you proven that you can handle a new debt consolidation loan? And no, I don't mean proven to the bank that you can handle it, I mean proven it to yourself.
That's right. Before you go and borrow money to "shift" your debts (remember, you are not "paying off" your debts, you are merely shifting them from one creditor to another) you should prove to yourself that you have the discipline and wherewithal to properly use this debt relief tool. I say "tool" because that is all a debt consolidation loan is and should be. The act of actually paying down your debts lands squarely on your shoulders.
The biggest determinant in whether
or not you pay off your debts is not the interest rates you are paying,
the terms of your loans or the number of payments you are making each
month. The fact is that you and your actions
(or inactions) will play the biggest role in determining if and how
fast you can drag yourself out of debt. The reality is that if you can't
handle your finances, prepare and stick to a budget, increase your
income and live below your means in order to get out of debt,
then consolidating your debts using debt loans will likely increase
your problems, not solve them.
Here's and example. Let's say at one point you had $30,000 in credit card debts with a 22% interest rate. Then, one fateful day you decide that enough is enough, and no matter what you are going to get out of debt. You sit down, analyze your finances, prepare a budget and begin living below your means. To supplement your income you begin working a few hours in the evenings building an online business instead of watching television. In fact, you are so determined to get yourself out of debt that you cancel your television/cable/satellite altogether and put the money towards your credit card balances instead. You are on a mission!
After 12 months of dogged determination, sticking to your budget, building extra income through your website and cutting back on your expenses, you manage to get that credit card debt down to $20,000. You devised a debt reduction plan, and stuck to it.
Then one day you are in at your bank and you find out that you can qualify for a personal line of credit for $20,000 at 7% interest. Should you take it? Yes. Why?
You are now "skilled" enough to use debt loans as tools, and wise enough to realize that they are only tools and not the solution. And with a new loan in your toolbox who knows, you may have that remaining $20,000 paid off within another 12 months. By that time you will not only be debt free, you will have a thriving online business that is earning you a nice supplemental, passive income each month. The tide of your money flows will have switched from always going out to flowing automatically towards you.
Now compare that scenario to the person who finds themselves in $30,000 of credit card debt and rushes out looking for debt loans to consolidate that debt using their house as collateral. They haven't done the hard work of preparing a budget, thoroughly analyzing their finances, trimming the fat out of their spending, or taking the initiative to start their own web-based business. All they have done is shifted their debts and taken on more credit.
Where are they in 24 months?
Well, the original $30,000 in debt has been whittled down to $28,000, and they have proceeded to rack up another $15,000 in credit card debt. In other words, they are $13,000 more in debt now than they were 24 months ago, and, they have put their house at risk if they default on the home loan. Now if you think this is a hypothetical example, think again.
I urge you not to make this mistake. Getting out of debt takes hard
work and determination. Everything else is just a tool.
there such a thing as a non profit debt consolidation loan?
You may have heard about non-profit debt consolidation (debt
management), but is there such a thing as non profit debt consolidation
Looking for an alternative to a credit card debt loan? Here is a great way to lower your interest rates (sometimes to 0%) without getting a new loan.