Consolidate Debts and Save Money

When you would decide to consolidate debts depends on your personal situation. Many people wait until the wolf is closing in before starting to do anything. Others are so distressed by their financial situation that they wait until someone else decides for them. Or it could take a divorce or other painful breakup before some decide it time to do something with their debt.

However, the earlier you face the reality that you can't keep juggling your disposable cash without some adverse fallout the better would be your chance for survival. Juggling means that you pay some of your creditors and ignore the rest, or you send each of them a little bit each month to keep them happy. But this strategy doesn't work for long because unless you arrange with them they expect you to pay in full. Of course, early in the debt avalanche you can ask your creditors to let you skip a payment, or pay less, but you shouldn't do this unless you get their approval. And it is arguably the best time to consolidate debts you amassed over whatever period.

When you consolidate debts you take your total debt including those you owe to friends and family, and find a lender who would give you a consolidation loan. For example, let say you owe $35,000 on your credit cards, bank loans, and other personal loans, and you pay monthly about $700. A sympathetic lender would give you a new loan to pay off the $35,000. From then on, you will make a monthly payment to the lender, including a specified interest premium. This does two things for you: First, you don't have to keep juggling your cash to pay several creditors. Second, the lender would arrange a monthly payment that you can easily afford.

There are drawbacks if you decide to consolidate debts you owe. For instance, the example above assumes the lender would go easy on you, but this is far from the truth. The lender runs a business and makes money off your indebtedness. If your income can help you pay off the loan in a year or two, you might get off with a slap on the wrist. However, if you earn low wages, the lender would have no choice but to spread the payments over a longer period. This means the interest rate would be higher and you would pay more than if you had the means to support your debt.

Of course, you can sleep better once you arrange to put all your debts in one basket. No more calls from collectors threatening to take your home or your car, and whatever they believe will make you pay. But take note that you should only consolidate debts to help you get over a bad financial situation, and not as a crutch for supporting bad credit habits.

There is a certain freedom that comes from having no debt, but if you find you have exceeded your limit, you can choose to consolidate debts that suck your life energy.

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