I have had a few folks ask me about whether they should get consolidation loans to try to help with their debt problems. As a rule, I don’t like the idea, but for some folks a debt consolidation loan may work. Consolidation loans usually consist of adding higher interest rate debts (i.e. credit card debt, etc.,) onto your mortgage or some low(er) paying credit structure that you now use.
A debt consolidation loan can be useful. You end up having a lower interest rate on your debts. There is, however, a very large danger with consolidation loans, which I will discuss after this helpful car tip.
I found a very interesting diagram on Pinterest that I now offer for your reading pleasure:
As I mentioned a debt consolidation loan may jump-start your financial life . You have a lower payment level for your overall debt, however, just like jump starting a car there are dangers. Some of the dangers of jump starting your car are:
- If you connect the wires backwards (pos on donor to neg on dead), you will fry your electrical systems (at the least), your on board computer and you may cause the batteries to explode.
- If in step (4) you connect to the negative pole on the dead car (as many people do), the battery may explode as well (one reason for that is you cause a spark over a battery that may be leaking fumes).
- This isn’t a danger, but if you simply jump-start your battery and don’t figure out why your battery went flat it could mean something more severe with your car.
Point number (3) on my list is important because it is similar for consolidation loans, which is why are you using a consolidation loan? If you are jumping your car, there is something wrong somewhere, similarly if you are using a consolidation loan, something is wrong financially in your life.
What Do You Mean?
What do I mean by something wrong in your financial life? It is possible that if you don’t change your lifestyle you will end up needing another consolidation loan. That can start a death spiral of debt that will not end well. You must find the root cause as to why you needed the consolidation loan, and deal with that part of your life, or you are doomed to have to “consolidate” again later.
Just like jumper cables, the debt consolidation loan can be a financial tool. You must use every tool very carefully, you don’t want your finances blowing up (like your car battery) or end up frying your financial life.