With tax season just ending, a lot of Americans are looking at their finances in a new way. Many have more debt than they can handle, whether it be in the form of student loans, mortgages, or high interest credit cards. Some people quickly turn to a debt consolidation program to manage all of their expenses, but not so fast: first, here are some things you need to know before considering consolidating all of your debt.
First, be knowledgable about what you’re getting yourself into with a debt consolidation program. Basically, debt consolidation means moving all of your existing debts into one account. This one account will have a lower interest rate than your open accounts, and instead you will have one monthly bill that divides between all debts owed. Sounds great on the surface, right? However, proceed with caution: many debt consolidation programs are looking to make a buck off of you (they are a business , after all), and may scam you into paying more by simply giving you one monthly bill and telling you not to “worry” about where the rest is going. It’s your money – you should be worried about it! Also, the low interest appeal of debt consolidation just means you’re paying off the loan for longer, which means you’re still in debt for a few more years.
Also, debt consolidation is only a short-term fix. It’s really only useful if you have large amounts of debt that you are able to pay off quickly. It does not help any long-term money management problems you may have – in that case, a debt counselor or debt management plan might be more beneficial. Here are two main factors to evaluate in your own life that affect our spending habits:
– Income level: many Americans can tell you right away how much they make in a year, but they probably can’t tell you what their disposable income is. This is the income left over after all bills and expenses are paid. Confusing that number with total income is a key contributor to credit card debt. (AKA – we spend out of our means.)
– Age: typically, those in their twenties have more disposable income, as they have less bills and obligations. As we get older, we have to figure in the extra expenses of homes, cars, and families that all add to our debt and plan accordingly.
If you do decide or are considering debt consolidation, always be alert for scams or offers that “seem to good to be true” – that means they probably are!
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