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2007-01-31 08:21:10
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Article by Burgess Xavier |
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Over our lifetime, some of us will accumulate debt. Some may accumulate more debt than they can repay. Soon a downward spiral takes place, and interest charges and penalties compounds the problem, making it more difficult to pay what is already owed.
One popular from of exit from this downward spiral is the process of debt consolidation. For many, this option appears to be the only way out, and the only way in which they can resume sound financial health. The shocking truth is that , there are many pros and cons to debt consolidation. It is important to be aware of these as you determine if debt consolidation is the right path for you.
Debt consolidation is a service whereby all debts from multiple sources are gathered and made into one debt and financed at the local banks or debt consolidation service providers. The perceived benefit is that only one payment will be made to one debtor as appose to multiple payment to multiple debtors.
If this has to be advantageous to the you, the following scenarios would need to take place
- The interest would have to be lowered as compared to the multiple interest payment from several debtors.
- The single monthly payment would have to be lower than the total amount of payments that would have gone to multiple debtors.
- The total amount of the actual debt would have to be reduced when consolidation kicks in.
The frequency with which either of these scenarios exist will depend on the debt consolidation service provider.
The ideal case, which seldom happens, is when all three scenario exist. The most popular one is that the monthly payment is reduced. When this happens then you have a much better chance of paying consistently and getting out of debt much quicker. This has the effect of stopping the spiral effect of added interest and late fees piling on the existing debt. There is also a positive physiological effects on you, knowing that you can make the monthly payment on time.
However, there is a risk in having a relax state of mind coupled with the fact that you now have extra cash to go around. This may lead to additional spending and maybe even added debt and can lead you back into the situation again - essentially defeating your plans of becoming debt free.
Unfortunately, many plans lower that payment by extending the life of the loan long enough to cover paying off the entire original amount owed. That leads to more interest paid over the long term. That's fair to the lender, since you do owe the money. But some will settle for less if they have good reason to believe they will actually get repaid. Try you best to negotiate a reduced settlement, then consistently make the agreed monthly payments.
In that vein debt and weight loss has a common attribute, they both need consistency and commitment to lower them.
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Debt Consolidation
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http://www.justintimeliving.com
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