Why Debt Consolidation Doesn’t Work

Debt consolidation is to a person with financial difficulty like liposuction is to a fat person. Dangerous without planning about what comes next.

Don’t get me wrong, I think there are situations where debt consolidation can be a powerful step on the journey to financial freedom. However, it’s necessary to have a plan before you get things moving.

Things to consider:
1) Where are you now – do you know how much money you owe and to who?
2) Do you know when your bills are due? (they should almost never come as a surprise as most costs rent, utilities etc comes in regular cycle)
3) Do you know where all your money gets spent? Really?
4) What do you want to be? If you answer is something like ‘better off’ or ‘rich’ then you haven’t thought this step through.

Half of the stress that people in financial difficulty experience comes from the uncertainty of the future. Not knowing if you’ll be able to cover the next phone bill, rent payment etc.

Most of the rest of the stress is powerless feeling that because you’ve let things get this bad yo have no freedom to make the choices that you wish to make for the way you want to lead your life.

Other things to try first:
1) Make a budget – start simple, what is your income and major costs (rent, electricity, phone etc)
2) Start to predict the UPCOMING bills (knowing is always better)
3) Keep track of all your expenses (parking money, chewing gum, stamps…anything). You may not want to always track these things, but do it for a week or two. You’ll probably be surprised.
4) Set short term achievable goals – like trying to pay that library fine you’ve been avoiding or whatever, it doesn’t really matter what. Not only will we achieve a sense of relief from something minor that’s been bugging us, but we start to feel a sense of momentum.
5) Over time we can raise the bar on what we feel is achievable, so that its possible to start setting medium and long term goals.

The path to financial freedom is the decision to take control of your own life by making better conscious decisions, instead of being stuck in automatic pilot as you drift through life.

Debt consolidation can be a powerful tool to get things moving in the right direction. Not only does it combine several juggled problems in a single debt, but it often goes hand in hand with a saving due to a better interest rate.

Like all major decisions of this type you MUST consider it from all angles. For instance what interest rate are they offering? Are you locked into the loan for a fixed period? What are the penalties if you miss a payment? Can you make extra payments if you wish? etc

Debt consolidation is an option worth considering, but make sure you understand your situation (where you are, how you got there and where you want to go) before you undertake such a big step. Otherwise you’ll just find yourself in the same if not worse position in the future.