Debt Consolidation: A Bad Idea?
Debt consolidation is the process of clearing one’s all outstanding debts and loans by a single large lump sum payment. If one has multiple outstanding loans at a single time, the option of debt consolidation is advertised all over the place to clear all outstanding debts in one shot.
But is it really such a good idea to choose the option of debt consolidation? After all, when one is finding it difficult to pay for multiple smaller loans, is it really such a wise idea to opt for a much larger amount of loan? Granted the repayment of the smaller loans will be taken care of instantly. But one would then have to figure out a way for the repayment of the single large loan taken to carry out debt consolidation. This is a recipe for disaster with bankruptcy a very likely outcome.
Taking out a debt consolidation loan can be a bad idea for another reason. There is always the possibility that the bank will not provide a loan to cover all of one’s outstanding loans. The bank may provide the borrower the option of paying smaller monthly payments, but there will be a large single amount to be paid for as well. One must therefore make provisions to be able to pay for that amount. Furthermore, a debt consolidation may continue to reinforce bad financial habits and one is likely to get stuck in a vicious cycle of taking out one loan to pay for another to pay for another.
It is therefore advisable to curtail one’s expenses in such a way that the possibility of having to take out a debt consolidation loan never even arises in the first place.
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