Traditionally, you amalgamate all your debts into one lump sum, owed to a single company, and get the old debts paid off by said company. They handle the paperwork.
The catch is, to get this done, you pay a fee to the debt consolidation broker. So in effect you are still in debt, and are paying a fee on top.
Also, debt consolidation agencies interpose themselves between you and your creditors; another layer of bureaucracy, more chance for something to go wrong.
Also, the fact that you’re using a debt consolidation company will show up on your credit report. This will affect your (future) credit rating.
Are you having money worries? Too many splurges on the ol’ credit card? Bought a 4-Wheel-Drive on HP, and can’t keep up the payments?
Here’s another tip: Re-negotiate.
If the alternative is bankruptcy, your creditors will take something now, rather than next-to-nothing later. Loan finance is just another business. You have bought money for more than it cost the lender.
You can re-negotiate unsecured debts. These are debts where you haven’t put up property as collateral. These include:
– Medical bills;
– Credit cards;
– Personal loans;
– Student loans;
– Bounced cheques;
– Department store cards.
Difficult to re-negotiate – secured debts. These are debts secured on cars or houses.
Even if you do have secured debts, who wants the hassle of a court case to get assets from you? A new agreement to pay off the loan at a reduced rate, or a lower monthly payment, makes much more business sense, than debt consolidation.
And regarding said assets: Can you sell the car at a good price, and get a cheaper one, or move to a smaller house, and pay off your debts? Can you rein in your monthly expenditure?
All these little treats that got you into debt, that you gave yourself, because you’re unhappy, add up. Address the cause of your unhappiness, and your need for treats will diminish. You’ll then have more money in the bank, and be happier. A sunny day, a walk in the park, the scent of a rose are all free, and a much better tonic than a fancy stereo or umpteen pairs of shoes.
Heck, you can keep your house, if you re-negotiate with your lender; they don’t want the hassle of evicting you. It’s a case of what is more profitable and easier; evicting you, or getting money up front. You can avoid debt consolidation companies altogether.
Being in debt is fine as long as you keep up the payments, are never late, and never default. Then everyone wants to lend you money.
When you do get into trouble, that’s when the fun starts. Then, when you DO really need a loan, for an emergency, you may have trouble getting it.
Take the advice your grandmother told you: never a borrower or a lender be. Borrow only to make more money i.e. for a business. Don’t get into debt for frivolous reasons. Pay off your debts as soon as you can.
Don’t call a debt consolidation company because you can’t be bothered to haggle with your creditors.
Then you will truly be free.