Simplifying Payments Isn’t Always So Simple
When folks start working on getting out of debt, a debt consolidation loan often seems like a good idea.
It makes sense on the surface, especially if you can get a relatively low or no interest loan. Why not just lump everything together so you can make one big payment each month and be done with it?
Logically, consolidating debt means that more of your payment will be going toward principal each month, allowing you to pay off your debts faster. You’ll also reduce the chance of late fees, since there will only be one payment to make.
There’s just one thing wrong with that theory, and it’s a biggie: People don’t always act logically. If we did, we wouldn’t pay thousands of dollars over the years for things we probably don’t even remember buying.
Usually the problem with debt is NOT high interest rates and late fees — those are just the things that hurt. They’re symptoms.
If you have non-medical debt, the real problem is that you’ve been living above your means for some reason. And if you’ve been living above your means, consolidating debt is almost certainly going to put you even deeper into debt — no matter how well intentioned you are.
You’ve got to fix the underlying problem first. You have to stop borrowing money. Period. For any reason.
Borrowing money is not the solution. It’s just something you’ve gotten used to doing almost automatically. The next time an emergency happens, pretend that no one will lend you money, not even the credit card companies.
What would you do then? Do that thing instead and break the cycle.
Once you’re consistently living below your means and scraping up extra pennies to throw at debt, then a loan to lower your interest rates might be beneficial.