We have all seen and heard the advertisements offering a quick and easy way to recover from debt. For some Americans, these ads are simply unnecessary noise, but for those who are dealing with the crippling power of excessive debt, they promise a solution to an overwhelming problem. While these people may be open to any possibility of resolving a problem that is so intense, we have all learned to be skeptical of anything that sounds too good to be true, and the lofty promises of some debt consolidation companies seem to be just that.
But even though they would be right to hesitate at anything that offers a quick and easy solution to such a complex and difficult problem, debt consolidation can still be a legitimate option. Many Americans have been able to pull themselves out of debt, avoid bankruptcy and reduce credit exposure with consolidation loans.
So the question is: Could debt consolidation be the right option for your financial problems, or is it simply a gimmick that cannot live up to its promises?
What is Debt Consolidation?
Although there are many techniques and types of debt consolidation– some more complicated than others– the basic idea is pretty simple. Generally speaking, a debt consolidation involves taking out one large loan in order to pay off all of your current debts. This essentially allows you to combine all of your current credit cards, medical bills and other unsecured debts into one monthly payment.
This may seem like borrowing from Peter to pay Paul, but it does provide a number of advantages when done correctly. The most obvious benefit provided by any debt consolidation loan is in the simplicity it provides by allowing many individual bills to be rolled into one. More importantly, it can allow you to pay less each month by providing a lower interest rate than your current debts and/or spreading the loan out over a long period.
Does Debt Consolidation Work?
Like anything in the financial world, debt consolidation has both pros and cons. When done correctly, it can provide a life-changing option for those who feel as if they are drowning in debt. But if done incorrectly, without proper planning or without the right execution, it can actually make the problem even worse. In this sense, it really is up to the individual whether or not debt consolidation can work for him or her.
What Are My Options?
Depending on your individual needs, credit and financial situation, there may be a number of options for consolidation including:
- Home equity loan
- Credit card balance transfer
- Borrowing from 401k, IRA or other retirement accounts
- Consolidation loan from bank or credit union
- Consolidation loan from online lender/consolidation company
In the end, debt consolidation does not provide a quick and easy solution to overwhelming debt because there is no quick and easy solution to overwhelming debt. When done properly, with discipline and right planning, it can be a lifesaver for many consumers who are on the brink of bankruptcy. But if done irresponsibly, without an attempt to change the behaviors and spending patterns that caused your current situation, you may just dig yourself into a deeper hole.