You don't need debt rearrangement—you need debt reformation. Your behavior with money doesn't change. Most of the time, after someone consolidates their debt, the debt grows back. Why? They don't have a game plan to pay cash and spend less. In other words, they haven't established good money habits for staying out of debt and building wealth. Their behavior hasn't changed, so it's extremely likely they will go right back into debt. How Does Debt Consolidation Really Work? Let's say you have $30, 000 in unsecured debt—think credit cards, car loans and medical bills. The debt includes a two-year loan for $10, 000 at 12% and a four-year loan for $20, 000 at 10%. Your monthly payment on the first loan is $517, and the payment on the second is $583. That's a total payment of $1, 100 per month. If you make monthly payments on them, you will be out of debt in 41 months and have paid a total of $34, 821. You consult a company that promises to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the two loans together into one.
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Is Debt Consolidation Right for Me? Struggling with debt can be exhausting in and of itself, however, keeping track of multiple loans can be brutal. If you find yourself missing payments and racking up interest fees from numerous creditors, then figuring out what is debt consolidation may be the relief you need. If you already have debt collectors calling you up, then there isn't any time to waste in getting your financial affairs in order. You should contact a credit counselor to create a debt relief program that will suit your needs. Before you jump into signing up for a debt relief program, read further to learn what is debt consolidation. What is debt consolidation If you are dealing with multiple loans such as payday loans, medical fees, credit card payments, and are wondering " should I consolidate my debt" then a bill consolidation program is a service that can help organize all of your debts into a single payment. In order to reduce the number of creditors that you need to pay on a monthly basis, you'll apply for a debt consolidation loan.
Debt slavery! By consolidating your loans you haven't fixed the source of the problem – overspending/undersaving: By consolidating your debt you're really just treating a symptom of the illness, instead of treating the illness itself. What is the illness? Overspending and undersaving. According to figures that Dave Ramsey cited, a full 78% of people who consolidate their loans end up creating new debt to replace any gains they've made. Change your behavior instead, put yourself on a budget, do a debt snowball and you'll be in a much better situation. So as you can see there are a lot of reasons that doing a debt consolidation may not be in your best interest. Carefully consider these points before heading down this road – and make sure that you're actually addressing the underlying issues that have gotten you into the situation in the first place. When Should I Do A Debt Consolidation? Are there times when doing a debt consolidation is actually a good idea? Sure. You just need to make sure that you consider the points mentioned above, get yourself on a written game plan, and make sure that the debt consolidation loan is actually improving your situation instead of making it worse.
Both can scam you out of thousands of dollars. What Is Debt Consolidation? Debt consolidation is the combination of several unsecured debts—payday loans, credit cards, medical bills—into one monthly bill with the illusion of a lower interest rate, lower monthly payment and simplified debt-relief plan. Take control of your money with a FREE Ramsey+ trial. But here's the deal: Debt consolidation promises one thing but delivers another. That's why dishonest companies that promote too-good-to-be-true debt-relief programs continue to rank as the top consumer complaint received by the Federal Trade Commission. 1 Here's why you should skip debt consolidation and opt instead to follow a plan that helps you actually win with money: When you consolidate, there's no guarantee your interest rate will be lower. The debt consolidation loan interest rate is usually set at the discretion of the lender or creditor and depends on your past payment behavior and credit score. Even if you qualify for a loan with low interest, there's no guarantee the rate will stay low.