Debt Consolidation Loans

Debt Consolidation Loans 

Many people talk about debt consolidation as a solution to their debt problems.

However, most of the time is an empty promise that by failing to address the root cause, ends up generating more problems.

What is debt consolidation?

Debt consolidation involves, in some way, take a loan and the amount thereof, settle all else we have in place. That is, we change all our debts by one.

For this to make sense, the new debt should have a rate significantly lower than that of loans we were interested. And of course: the amount we pay each month should also be much lower, so that we can be a little less tight in our cash flow.

The problem is that this happens rarely. If we are mired in debt, as is commonly said, it is very difficult to obtain a loan sufficient to pay all other debts we have. In addition, if we can get it, it is very unlikely to be at a lower interest rate because we represent a risk to the institution that gives us money.

Finally, we have acquired new debt has to be a long time so you can really mean a lower monthly payment to which we had prior to debt consolidation.

Why debt consolidation is not the solution?

People who have a severe debt problem, because usually acquired him for several months - or years - are accustomed to spend more than they earn. That is, the money they receive is not enough to live, and therefore have to fall back on credit to get by.

Debt consolidation does not solve this - simply changing several claims by one. The underlying problem, the reason why we fell into a severe debt problem is still there. And this can be very dangerous.

I have had to see several cases of people who managed to consolidate your debts but continued to use their credit cards: those who paid the amount of the new loan obtained for consolidation.

So you are left with a large debt - consolidated - but begin to acquire other derivative use - again - on your credit cards.

Many readers might think this is very innocent and very little happens. For I have seen: it happens much more often than you realize.

The reason is very simple, and commented: People are already accustomed to spending more than they earn. Usually they can not meet their needs - and payment of the consolidated debt - to income they have.

So they are forced to fall back again their credit cards, which makes the problem grow and get out of control again. There's even a few close friends who consolidated their debts through a mortgage liquidity event. But they returned to use their credit cards and were slowly falling into a huge problem.

Now they have a high risk of losing your home: they are struggling a lot to keep paying the mortgage.