Consolidation means paying existing debts with the help of a new loan with lower monthly payment and having longer repayment period. Consolidation loans help people to pay off their existing debts. Debt consolidation loans are helpful to pay-off credit cards, medical expenses, student loans and many others.
It is never, let me say that again, NEVER, a good idea to borrow to pay off other debt. Instead one must change their habits. That is stop being a spender and become a saver. Saving is the key. However, first a person must reduce their debt as soon as possible. When one debt is paid off, apply those funds to the next debt and then the next and so forth. Doing so will reduce your debt faster. Once you are debt free, and that means car and home loans as well as credit cards. (John Cummuta calls this the debt accelerator and Dave Ramsey calls it the debt snowball. No matter what you call it, it just makes since.) Put all the money you had been putting toward your debts into savings. Then never use credit again. If you can't pay cash, then you don't need whatever it is at that time.
This is just false. If you can get a better rate, borrow to pay. You're saying everyone who refinanced their mortgages over the past few years were wrong? Nonsense. If a person has debt, they may have already changed their habits. Now they have to pay off the debt. And they should always, let me say that again, ALWAYS work to get the lowest rate possible.
ReplyDeleteAnonymous -
ReplyDeletewhy are you hiding?
1) Actually you are using faulty logic. But don't feel bad, most people do and that's why they don't get out of debt. 94% of americans can not afford to retire without social security. Refinanceing your mortgage is stupid because you have to pay for charges again, such points and loan origination fees.
Howver, my post was not about refinancing a mortgage, but avioding loan consolidations, so that brings me to my 2nd point.
2) As anyone who listens to Dave Ramsey or John Cummuta knows, the reason you don't get a consolidation is 2 fold. One you may get lower intrest rates, but people tend to roll all ldebts into it, including those with even lower interest rates. Two, consolidation loans usually take unsecured debt and secure it with your house. It is just plain stupid to gamble your house that way.