It is a myth that debt consolidation saves interest, and you have one smaller payment to a single lender instead of accumulating interest on several different debts and repaying them to different lenders each month. But the truth is that debt consolidation is dangerous because you treat only the symptom.
In reality, Debt consolidation is nothing more than a "con" because you think you’ve done something about the debt problem, but the truth is that the debt is still there, and so are the causes that led to it. You have just succeeded in moving it! It is impossible to borrow your way out of debt. You will just have to pay more. You can’t manage to get out of a hole by digging more.
According to Larry Burkett, a noted financial author, debt is not the problem; it is the symptom. Debt is the symptom of overspending and under saving. Most of the certified counselors do not recommend debt consolidation for a client because debt consolidation doesn’t work.
Debt Consolidation Statistics
A debt consolidation firm’s internal statistics have showed that 78% of the time, the credit grows back after someone consolidates his credit card debt. The reason for this is quite simple. The client isn’t given any game plan to either pay cash or not buy at all.
Debt consolidation may look appealing because there is a lower interest rate on some of the debt and a lower payment. But the fact is that the lower payment exists not because the rate is actually lower but because the length of the term is extended. If you stay in debt for a longer period, you get a lower payment. But also keep in mind that if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.
The Real Way to Get Out of Debt
The real way to get out of debt is by changing your own habits. You should analyze your income, your needs, and your expenditures. If you are unable to match your income to your expenditures and you’re stuck in debt, get an extra job and start paying off the debt. Try to live on less than you make. Don’t go for debt consolidation to free yourself from all the debt, as it will only increase this way.
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