Modern society presents us all with a virtual minefield of opportunities to take on more debt than we can easily handle. Do any of these “debt enhancers” sound familiar:
- An unsolicited credit card with a low interest rate that skyrockets after a year, or if you’re a single day late with a monthly payment!
- A layoff or unexpected gap between employment contracts
- The uncovered expenses of an automobile accident
- The loss of one income in a two income family
- The gift a loved one really desires, when “no” is not an option
And this list doesn’t even include the costs of the numerous impulse buying opportunities that highly skilled and well paid marketers are constantly tempting us with. If you are a young person already carrying the burden of Student Loans, or anyone else facing credit card debt problem, take a moment to talk to trusted friends or relatives. It is more than likely that almost everyone you know has taken advantage of the benefits of debt consolidation at some point during their lives. Most will say that debt consolidation was a smart thing for them to do at the time. The ones that care about you will also caution you that using a debt consolidation loan to allow yourself to run up still more debt is a REALLY bad idea!
Here are some factors to consider if you are thinking about a debt consolidation loan:
Debt Consolidation Loans Can Lower the Cost of Getting Out Of Debt
One of the principal benefits of debt consolidation loans, of course, is that the interest rate is almost always lower. More of your money goes to paying down your actual debt, and less goes to profit for the lender.
Homeowners who use a second mortgage as the vehicle for achieving the benefits of debt consolidation may reap the additional benefit that the interest they pay on their debt consolidation loan may be tax deductible.
Debt Consolidation Loans Can Get You Out Of Debt Sooner
The combination of low minimum payments and high interest rates can make progress on paying down some credit card balances nearly impossible. People sometimes find that the monthly interest charge added to their balance, plus the few new purchases they simply had to put on the card, more than wipe out any reduction in the outstanding balance from the small monthly payments they make. Properly constructed debt consolidation loans assure you that each monthly payment will result in at least some progress toward reducing the balance.
If your debt consolidation loan allows it, making occasional payments, even small ones, between your scheduled payments, can significantly shorten the time needed to pay off the loan. Talk to your lender for the surprising details.
Debt Consolidation Loans Reduce Stress
Keeping track of the balance due on a half dozen consumer loans with different payment dates each month can be a real nightmare. With a debt consolidation loan you have just one single payment to worry about, saving you time and anxiety. You always know the exact amount you must pay, and the date that one payment is due. Having the payment automatically deducted further simplifies matters.
Some who have struggled with too much debt, and too many payments, for too many years, insist that the most single most important benefits debt consolidation brought to them was ending the embarrassing and humiliating collection calls that always seemed to come when guests were in the home or dinner was on the table.
Debt Consolidation Loans Make Wise Investments Possible
Life is a precious gift. There isn’t much we can do to change what has happened in the past, but there is much we can do to shape the future. One of the principal benefits of debt consolidation is that it can provide the cash flow to make meaningful investments in the future that would otherwise not be possible. These investments may be in the form of minor home improvements that lower fuel consumption cost while adding to the resale value of the home, or educational opportunities to increase future our earning potential.
Importantly, part of that extra cash flow may also be used for increased contributions to an IRA or the 401(k) plan offered by your employer. Today’s typical American can expect to live to 85 or older. Social Security and Government health benefits are intended to cover only a portion of our post retirement living expenses. Getting money safely invested in a tax sheltered retirement account is vitally important, and the earlier one starts, the better. Yes, that does mean you should start saving for retirement even if you are still paying down old debts.
Remember, however, that you will not enjoy the benefits of debt consolidation if you are unable to manage impulse buying, or if your household budget contains fixed costs such as mortgage payments, real estate taxes, or similar costs associated with the maintenance of a second home. In cases where the benefits of debt consolidation alone are insufficient, the services of a professional budget advisor may provide the best path to regaining control of your current and future financial security.