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Debt Consolidation, Is It Necessary?

Debt Consolidation, Is It Necessary?

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Published by Michelle Albers
Do You Need to Repair Your Credit or Consolidate Your Debt?, Click here to find out how
Do You Need to Repair Your Credit or Consolidate Your Debt?, Click here to find out how

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Published by: Michelle Albers on Jan 03, 2012
Copyright:Attribution Non-commercial


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 ==== ====How To Become debt Free, click herehttp://www.dynamicsolutionsintl.com/malbers/  ==== ====With near everyone complaining about credit card bills they can no longer pay and mortgages theynever should have taken out in the first place, it was just a matter of time before the debtconsolidation industry took hold of the public's imagination. Most people finally seem tounderstand that, after 2005 congressional legislation, Chapter 7 bankruptcy no longer promisesanything to ordinary consumers beyond increasingly dear attorney fees, and, if recent studies aretrue, our national obsession with unsecured debt continues unabated. An article in the Wall StreetJournal announced that the average household now carries a dozen credit cards among theirmembers with a total balance approaching eighteen thousand dollars. Honestly, if anything, itseems odd that Americans did not turn to the debt consolidation approach sooner. Once debtshave reached a size and number that makes their speedy resolution untenable, it just makes goodsense to examine whatever alternatives now exist. However, it's one thing to take a look at debtconsolidation and quite another to jump blindly into the first program sold by a glib professionalpromising the world. Debt consolidation may be a solution, but each of the various programs willcontain its own share of dangers. More to the point, they certainly shan't eliminate lifelong burdenswithout some degree of discipline on the part of the borrower. Just because we as a people have finally recognized our problems with debt both secured andunsecured does not mean that we are actively striving to fundamentally eat away at the underlyingconcern. Debt consolidation is sort of a catch-all phrase for many different approaches towardmanaging financial burdens, and not all of these consolidation programs should be equallyrespected. Indeed, some of the shadier options could even be considered actively destructive tothe borrowers' household economics. In this essay, we would like to discuss some of the problemsthat debt consolidation presents for families. While the notion of consolidation has received a gooddeal more attention of late, the same cannot be said about the details surrounding the varioustechniques utilized. Also, we would like to introduce some of the ways that consolidation could besimply avoided through hard work and disciplined budgeting on the part of the borrowers.Remember, even though it's far less damaging than bankruptcy, all forms of debt consolidationshould still be viewed as last ditch efforts to repair mishaps or heal poor purchasing decisions frompast years. The debts are not going to be eliminated after all, and it's important that consumersremember that they are still liable for the sums even once they are consolidated. If debtorscontinue the same careless shopping sprees and knowingly spend more than they earn, thanconsolidation will have no effect and, once again, could even worsen the borrowers' overallfinancial scenario. One of the main principles you should take to heart when looking at the debt consolidation processshould be this adage: the lower the payment, the longer you're going to be stuck paying off yourdebt. The less that you pay every month following a successful debt consolidation, it should beunderstood, will only increase the amount of money that you will pay at the end of the loan aftercompound interest continues to expand the overall balance. It's just common sense, really. Put off
paying today what you could pay off tomorrow, and you will inevitably owe exponentially more.Most lenders, of course, will never illustrate that philosophy. Consolidation companies' incomelargely comes from just this sort of accumulation of interest payments, and they generally try toappeal to borrowers' (oft delusional) beliefs that they will immediately quit the spending reflexes ofa lifetime and devote themselves to patterns of saving that would allow them to repay their loanthat much earlier by paying over the minimums. Don't be fooled by easy flattery and pie in the skyspeeches about a sudden change of habits. Most every consolidation professional will attempt toinsist that, all of a sudden, you will pay more than the minimum obligation. Know yourself and yourbuying habits. If you have not been able to restrain spending in the past, there's no reason tobelieve that a sense of responsibility will suddenly come your way absent any effort, and,depending on the program, the sudden availability of open credit accounts could just make thingsworse. At the same time, though we would certainly advise borrowers to do everything they could to paydown their debts regardless of what the minimum payments are fixed at, one also has to makesure that they do not begin a similarly obsessive strategy of earmarking every dollar earnedtoward repaying past debts. Much as you would reasonably hope to devote all available fundstoward debt elimination, the smart borrower yet maintains a cash reserve to guard against everybad patch. For those loans attached to collateral (equity loans, particularly), it should be of thegreatest importance to ensure breathing room. Real estate values have become so tenuous of latethat no home owner who cares about their investment (or, more to the point, their family) shoulddare risk their precious equity for a quick fix, and debt consolidation in the wrong scenario couldactually back fire against the consumer. Considering that the financial obligations likely cameabout through reckless spending, consumers must be very careful not to over indulge their newdesire for a clean slate. Loan officers, in particular, are at fault for convincing their clients about thefuture health of an uncertain property market or evading the depressing but pertinent details aboutforeclosure and the danger of equity loan consolidation. However the mortgage industry attemptsto weather the storm partially caused by predatory lenders acting in their own best interests, theeffects of the loans that they pushed upon unwary borrowers continue to bother the nationaleconomy. One should never entirely trust the lenders, after all. Credit card companies and mortgage loancompanies depend upon the borrowers' willingness to sustain payments and extend them foryears if not decades. In fact, lenders list each client's balance as a bankable asset to be sold ortraded to other lenders (or, ironically, used as collateral for their own loans). Whatever the lenders'literature or representatives may say about helping borrowers minimize their debt load with an eyetoward eventual debt elimination, their business model explicitly demands a continual revolvingdebt cycle that forces debtors into a life of servitude, ever subsidizing their financial burdenswithout actually getting rid of them. We are not necessarily suggesting that you close all cardsafter consolidation - though, with some programs, that will be necessary - because of the effectthat would have towards your credit rating. The ever powerful FICO score likes to see someaccounts open to demonstrate that you still maintain some credit viability, and, with all accountsclosed, you would be starting again from scratch with no current credit history to draw upon.Ideally, you would maintain one or two of the oldest accounts or the accounts with the largestavailable balances (interest rates should also be part of this discussion), but it is of sacrosanctimportance that these accounts not be used regardless of how much you may wish to resumepurchasing. For convenience's sake, it might be useful to take out a bank card for ordinaryspending but only one that has debit purposes without overdraft potential.
 All the same, much as plastic may now seem an undeniable essential of the modern consumerexperience, there are reasons to still avoid utilizing any cards at all. Studies have shown thathousehold economics are utterly ruined through the casual use of cards credit or debit whenattempting to maintain some sort of workable budget. Once families no longer have to count upthe prices of the items that they are purchasing, it seems all common sense goes entirely out thewindow. For this reason, we recommend that debtors - even before they have begun the processof consolidation - attempt to refrain from using cards even during their normal shopping for thehousehold. For that matter, they should try to not even bring an ATM card upon their person andmake do with whatever seems reasonable when leaving their house. If you only have twentydollars to spend at the supermarket, you will be much more inclined to question the necessity ofvarious purchases and also make more of an attempt to comparison shop by trying lower costbrands and such. One should be careful not to ignore the bulk discounts for large families, but, byand large, this sort of tactic goes a very long way in conserving money to bolster savings that canbetter be used paying down the debts that you already have. For larger purchases, still, even those most demonstrably needed, the smart household shouldsee the need for such purchases coming well ahead of time and maintain a small savings eachweek to help pay for the item in cash. While we have to acknowledge that some things may indeedbe reasonably justified by resorting to lay away plans - washing machines, say, or refrigeratorsthat suddenly go on the fritz must be replaced - home entertainment systems or family trips or anysuch leisure indulgences hardly fall under the same guidelines. All the same, even though weunderstand that vehicles and residences require loans and mortgages, you must make sure thatyou do not let yourself become liable for more than you really need regardless of what debtconsolidation specialists may pretend. Consider previously owned automobiles or smaller homesin less desirable areas of town until you can put a proper amount of cash down: especiallyconsidering the stormy forecast of this economy. With regards to property loans, for example,never even think about taking out a mortgage for more than eighty percent of the appraised value.Not only will you have to pay out a so-called mortgage insurance to the lender (in reality, this isless insurance than a extravagant and usurious monthly penalty insuring nothing more than thenew homeowner's foolishness and the lender's security), it just doesn't make sense in this time ofreal estate market instability to gamble with so dear an investment. Even though refraining from big ticket items you would ordinarily have bought or rigorously cuttingdown the household budget might require some short term sacrifices, you're often saving yourselfsacrifices farther down the road. The first step, though it can sometimes be difficult, is to takestock of the money that you're spending each month. Try, even for a week, writing down theamount of money that you spend on groceries, on restaurants, on entertainment, and outliningdifferent things that you may be able to cut back on. Often, it's easier than you think. Are you inthe habit of picking up a coffee every morning before work? Try waking up five minutes earlier andbrewing it yourself. If you make a batch and microwave it each morning, you can even saveyourself the time. Do you catch a beer each evening after work? Is it imported? See what you thinkabout the domestic brews. Pick up recipes off the internet so that you can have the experience ofdining out even when at home. So much money is spent upon the kitchens of restaurants, but,sometimes, even a few degrees of difference can make all the difference between settling andmaking everything you want out of what you already have. Not only is this sort of do it yourself approach helpful to paying down bills over a short term debt

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