You are used to a lifestyle where you are using multiple credit cards including medical credit cards, gas card, and target card etc. You need to make several payments every month. Moreover, you need to think about your car payment, mortgage, electric bill, gas bill, student loans payment, Internet, phone, cable, Netflix etc. You are burdened with a whole lot of bills to pay every month. It is, therefore, quite evident why debt consolidation is so popular and appealing to everyone who is overwhelmed with ever-mounting debts. Debt consolidation has the unique capacity of reducing the actual number of payments that you are making every month. Multiple payments are combined into one single payment in debt consolidation and that is the convenience factor. It means less work and definitely no reason to forget paying one of the bills accidentally. However, there could be occasions when debt consolidation may not be a great idea.
Debt Consolidation Truth
Debt consolidation is so popular since it is quite beneficial to consumers on many occasions. When debt consolidation loan, debt management programs, balance transfers, and even mortgage refinances are working out to be mutually beneficial, they could be a great way of restoring your financial stability and health.
However, there are times when they are not catering to specifically your best interests. There would be occasions when consolidating all your bills could be causing more harm than any good. You need to carefully evaluate the merits and demerits of debt consolidation before opting for it. Here are some of the circumstances when it is better to avoid debt consolidation.
When You Have No Intention of Getting Rid of Old Habits
One of the key advantages of debt consolidation is helping you get a breathing space. When you combine multiple small payments into one big fixed payment, there would be a scope for some breathing space in your budget. Now your debt consolidation would be getting positive results or not, all depends on how you intend to utilize that breathing space in your budget. If you consider that breathing space as a great opportunity to splurge and continue paying for wants rather than needs, you would soon be left with no breathing room in your monthly budget. You would soon find it more and more challenging to stick within the budgetary constraints.
You simply should not use debt consolidation as just a one-stop solution for all your money issues or financial problems. If you are entertaining bad money habits and not taking any efforts to address the issues seriously or if you are finding it challenging to maintain a reasonably healthy budget, you would surely not be benefitted by debt consolidation as that would, at best be delaying your financial issues.
When You Are Placing Your Home at Risk
One of the frequently used types of debt consolidation is actually refinancing your home. Home equity loans would financially make sense as the rates would be always remarkably lower as compared to the credit card rates. The main issue here seems to be that you are transforming unsecured debt directly into secured debt plus you are jeopardizing with the safety and security of your own home. If you are defaulting on your brand new mortgage payments, you could end up losing your home. Filing for bankruptcy is really bad but losing a shelter over your head is even worse.
Apart from the above-discussed situations, you must avoid debt consolidation if you are worried about any adverse impact on your overall credit score. When you are opting for debt consolidation, your old accounts are all replaced by a single new account. Suppose you are having a good score and are able to manage individual accounts properly at present, debt consolidation may not be your best choice.