In recent years, debt consolidation has been discussed on all sides by people in debt. On one hand, it is seen as the perfect solution to dissolving debt quicker. On the other hand, it is regarded as something one should do only as a last resort.

The question on everybody’s lips is: does debt consolidation really get you rid of debt? The answer to this is both “Yes” and “No.” How is that possible? Well, we’ll see the reasons immediately. Financial tools are, most of the time, two-edged swords.

Whatever you do, not acquiring enough information can get you in serious trouble. Read this carefully in order to know what the deal with consolidation is.

Why the “Yes”?

Debt consolidation can solve your financial problems, but there’s a very important condition you must respect if you want to do that: you must correct your financial behaviour. You probably need consolidation because you’ve done some serious mistakes in the past.

As long as you don’t build up even more debt by defaulting on your consolidation loan or by missing on monthly repayments (again), your problems will eventually diminish, then disappear completely. In this circumstance, yes, a consolidation loan can be very helpful.

A consolidation loan does not solve anything by magic. Most people take this type of loan for all the wrong reasons. Misinformation can be blamed for this. High expectations without the contribution of actual behavioural changes in respect with spending recklessly are also to blame.

reckless-spending

Why the “No”?

There are many cases in which consolidating the debt is simply not the recommended thing to do. For instance: when it does not come with lower interest rates than those you are already paying, it’s obviously not much of a relief.

Moreover, as we’ve mentioned, debt consolidation is not a magical formula you simply recite and your debt clears out by itself. Another important aspect why debt consolidation is dangerous is that it’s often secured on one of your assets.

In other words, you can easily lose your house if you don’t pay the consolidation loan. You can clearly see that a consolidation loan can get you in more debt quicker than it can get you out of the existing one. This is not a very pleasant prospect, is it?

Why is Debt Consolidation a Double-Edged Sword?

The problem with many financial tools is that the clients don’t really understand how they work. Of course, not everyone works with money, and the more the client knows about the financial service he/she is getting, the bigger the chances for him/her to use it advantageously.

When it comes to debt consolidation, it is important to know that your debt will still exist in the near future. It will not go away instantly. However, it can be transformed into a more approachable one, financially speaking. You can get a lower interest rate and a lower monthly pay, depending on the lender you sign with.

While it is a popular method among those who have financial problems, you still need to ask an expert about all the advantages and disadvantages. A debt consolidation service might look excellent on paper, but in reality, it can double your financial problems, even if you read the document twice.

Also, check the market before jumping on the first contract. When it comes to financial services, you will need to get the one that gives you the biggest advantage, especially if you have financial problems.

financial-problems

You should also look out for shady lenders. Whenever a client accepts a financial service, the lender gains some profit. However, some lenders will present you a service that may look great on paper, but you will never be able to pay it back on time or in full.

That’s when you will start losing money fast; you’ll lose your car, your house or other assets. So, be careful with these lenders. A debt consolidation offer where your debts magically disappear is most often than not a scam. It is in your interest to get informed.

Concluding Remarks

Debt consolidation makes sense. Not all the time, but it does. If you approach it thinking that your debt will be gotten rid of overnight, you are just lying to yourself.

The most important thing about this type of loan is that it is not worth it if it does not offer lower interest rates and possibly a tailored repayment schedule.

And of course, it’s of no help if you continue to indulge in the same behaviour that got you indebted in the first place. Hopefully, your consolidation loan will indeed help you pay off your debt sooner, but you must be willing to discipline yourself.

You can read more on the subject on www.australianlendingcentre.com.au, as well as receive advice from professionals in the field.