A common problem many people share is debt. If you are one of them, perhaps your debt comes from a home mortgage, business loan, auto loan, or student loan. Or, maybe it is a different loan altogether.
Nevertheless, no matter where your debt comes from, there are different methods to dealing with it. My approach, for instance, is to work hard in order to pay off my debt as quickly as I can. But some people deal with it by asking for help from friends or relatives.
If you are searching for ways to get out of debt you may have thought about debt consolidation as a possible solution. However, there are reasons why debt consolidation isn’t the answer to your money problems.
What is Debt Consolidation?
Debt consolidation is the process of getting one new loan for a higher dollar amount that allows you to pay off a bunch of smaller ones. Usually these debts are unsecured loans. The new loan may have better terms, a lower rate of interest, lower payments, or any combination of these.
Why it Doesn’t Work
One reason why debt consolidation isn’t the answer to your money problems is because the debt hasn’t really gone anywhere. It is still there and you still owe it.
While you may experience a sense of relief from having lower payments, it doesn’t solve the issue of poor spending habits. It’s a temporary solution and should be treated as such. The problem is that without changing the way you spend you may end up back in the same situation again within a few short months.
But another problem with debt consolidation is that it may draw out the life of the loan. In other words, although your payments are lower, you will be paying on the debt longer. In the long run you will actually be paying more money than if you had taken an alternative approach to pay off your debt.
Real Tactics to Pay Off Debt
There are a couple of good tactics you could use to pay off debt instead of choosing debt consolidation. Debt negotiation, debt settlement, and debt repayment are just three ways of paying off debt you could try. You could also try getting a side hustle to create extra income you can use toward paying off debt.
However, before tackling any of these you should first create a budget. In addition, to pay off your debts the quickest, you need to be ruthless about cutting out expenses that are unnecessary.
As an example you might try to change your cell phone plan to one that costs you much less. If you are going to a salon each month consider cutting back or stopping these services as well.
Next, try contacting creditors such as your cable provider to see if you can negotiate some of your bills. You may also be able to settle others for less if you call and ask. They may say no, but it’s worth trying.
Additionally, you could try paying off debt using a debt repayment method such as the snowball method. To put this into practice you would pay the minimum on all your bills except the smallest. On that one you would pay as much as you can until it is paid off. Then you tackle the next lowest bill and so on until you are debt free.
Finally, you could get a second job, or side hustle, to help you pay off debt. Be sure to use all of this income toward debt, though, so you don’t get back into the bad spending habits that landed you in debt in the first place.
Even though nobody likes to be in debt you can see that debt consolidation isn’t the answer to your money problems. Try one of the other ways I mentioned above to get control over your debt and free yourself from it once and for all.
Have you tried debt consolidation in the past? If so, did it help or hurt you financially?