Is Debt Consolidation Management Your Way Out Of The Debt Trap?

Debt Consolidation Management For Consumers Overwhelmed By Debts

Owing to their lack of financial know-how and lousy spending habits, consumers get entangled in debt traps. They regard plastic credit as “free money,” conveniently using up their credit limit to the maximum while paying only the minimum monthly dues. For a time, this set-up might have worked but when the financial crunch hit, things were no longer that convenient and bills begin to pile up until it becomes unmanageable already. Hence the need for intervention by debt management firms. One of their services include debt consolidation management.

Debt Consolidation Management Simplifies

Debt consolidation begins by obtaining a debt consolidation loan to settle all the individual debts and the debtor instead conveniently pays this single new loan. Consumers overwhelmed by debt often owe many creditors. Because of these multiple accounts, it is possible that the he will miss paying one or more of the accounts resulting in additional late penalty fees and higher interests. Consolidating debt into one makes paying monthly dues easy. Although this may sound simple, debtors must realize that a thorough analysis of their financial situation is vital to assess if a debt consolidation is for them. They may need the services of a debt consolidation management firm for advise. The firm can help a debtor analyze his financial situation and negotiate for an affordable monthly payment schedule and lower interest rate for the debt consolidation loan.

The Problem With Debt Consolidation

It is reported that more than half of individuals who went through a debt consolidation ended up with the same amount of financial obligations in a couple of years. Some even ended up with higher amounts. This could be explained by two reasons. First, for debt consolidation to work, the interest rate for the new loan must be affordable to the debtor. Debt consolidation management companies often advertise low interest rates. However, some debtors have accumulated so much debt which make them ineligible for these low interest rates. As a result, he ends up paying higher.

The second important reason why debt consolidations fail is the oversight of correcting spending habits. Having settled their debts from the multiple creditors, creditors may have enjoyed initial relief from the harassing calls from credit collectors and forget that they still owe money. Thus, they went back to their old spending habits that, in the first place, shoved them into this financial trap. As a result, they still fall behind payments despite help from debt consolidation management professionals.

Good Debt Consolidation Management Addresses The Root of The Problem

To avoid debt consolidation fiascos, it would be best if debt consolidation management companies properly advise their clients. They should not get them into debt consolidation loans that charge high interest rates. If higher rates are the only ones available for the client, it means that debt consolidation is not suitable for his case. Also, credit counseling must be made part of debt consolidation management. In this way, clients are properly given guidance on credit and money management and in forming better spending habits.

Good debt consolidation management does not end in just helping the client obtain a debt consolidation loan; more importantly, affordable interest rates must be secured and proper credit counseling is given.