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Can debt consolidation make my financial position worse?
By Jack Willis
Debt consolidation is one of the best ways of reducing debt. Your
monthly payments become much lower and this will give you more
disposable income. Unfortunately, debt consolidation can also make
your position much worse. The reason debt consolidation can be bad
is you. You, and your bad financial habits. That is how you got
into debt in the first place.
Lack of financial discipline
If you take out a debt consolidation loan you have given your
finances some breathing space. This means you should cut up your
credit cards and take on no more forms of personal credit. This is
because even though your payments are lower your outstanding level
of debt is the same. It has just become more manageable.
If you do not get disciplined in this area you will find yourself in
deep trouble. If you rack up more credit card debt, you will have
to meet the payments of the credit cards as well as your debt
consolidation loan payments. The reason you got the loan in the
first place was to relieve the strain to debt. This is one surefire
way of getting in more financial trouble.
Credit is not your money
Many consumers feel that the available credit on their credit card
is their money. Once a credit card balance is paid off you are not
in a position to use that money again. By using that credit
facility you are entering more debt that ultimately will have to be
paid. The best way to stay out of debt, is to not use easy credit
and to realize that credit is not your money.
Your house could be at risk if you do not keep up repayments
Most of the basic forms of credit like overdrafts, credit cards and
personal loans are unsecured forms of debt. This means that the
money lender has lent you money based on information you have
provided to them about your income and your ability to service
repayments without requiring any form of security to be placed
against the debt. The main reason these forms of credit are
unsecured is because the amounts are normally small relative to the
applicant¡¯s income.
Debt consolidation loans, on the whole, are secured loans, normally
secured against property. This is why rates can be lower than high
street personal loans. It is necessary for the loans to be secured
because each person who applies for a debt consolidation loan is
classified a credit risk and has a track record of getting into
debt. To offset this risk, the money lender will ask for security
to be placed against the loan. If you fail to make payments on your
loan then you may lose your security.
This is why self-discipline is so important in debt reduction
because you may easily make your position far, far worse if you
continue to treat debt in a frivolous way.
About the Author
Mortgage Relief has offered information and assistance so over 12,000 Australian's have reduced their mortgage. Find out more at http://www.mortgagerelief.com.au/
Article Source: http://www.simplysearch4it.com/article/6230.html
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