It seems like every day the question of debt consolidation comes up and I think it is starting to drive me a little crazy. Some where in the human DNA is a gene that makes people think that when you have problems paying your bills that debt consolidation is the natural debt solution.
If I had my choice I’d rather make the bills magically vanish. I’d rather have that little leprechaun on the Lucky Charms box come and make my debt magically disappear. Debt consolidation does not do that. Instead, debt consolidation just wraps your debts into a new obligation.
It isn’t even possible to get a debt reduction from debt consolidation. The best debt consolidation program in the world is not going to consolidate your debts into a smaller balance. You’ll still owe what you owe. The only way to reduce your monthly payment would be by paying off your debts with a debt consolidation loan, typically a loan using your home as collateral.
If you default on your new debt consolidation mortgage, the bank will take your home and you will lose your roof. The consequences from defaulting on a debt consolidation mortgage refinancing are pretty severe so just know what you are getting yourself into before you sign on the line.
Borrowing money to pay off your debts may allow you to lower your monthly payment but that does not lower the amount you owe. Let’s be clear about that. The reason your payment may be lower is because the interest rate is lower and the length of time to repay the loan may be longer as well.
The most realistic ways to eliminate credit card debt quickly is if you happen to come into a windfall of money, like winning the lottery or inheriting money after the death of a loved one. I’ve seen both of these things actually happen and people have managed to get out of debt completely.
It’s really hard to time a lottery win or the death of a rich relative to your desire for a debt consolidation loan so don’t hold your breath waiting for that to happen.