The easiest way to obtain free debt consolidation help is through the consumer's or business' primary financial institution. Some financial institutions offer debt consolidation loans that offer an attractive alternative to other high-interest forms of debt. The specifics of the loan itself need to be weighed against the initial debt obligations to ensure that, at the very least, short-term payments are less expensive than the individual debts they are replacing.
Pros and Cons of Debt Consolidation Loans
Debt consolidation loans can be either a money-saving life preserver or the proverbial last nail in the financial coffin depending upon spending habits after the consolidation loan. Consumers and businesses need to carefully consider what factors led to the initial debt crisis in the first place and alter spending practices accordingly. A debt consolidation loan without the backing of the behavior change can quite often result in accumulating more debt by freeing up credit cards and other methods of spending, compounding the problem. When used properly, a debt consolidation loan can provide a company or individual the basic cash flow necessary to survive a short-term crisis.
The Hidden Cost of 'Free' Debt Consolidation
The devil is in the details, and the contracts relating to debt consolidation loans are no exception. Always read the entire contract and ensure interest rates are clearly highlighted and that the loan issuer carefully explains all aspects of the loan. Lending money, even through debt consolidation, is a for-profit business. Generally, to earn that money, the monthly payment is reduced to spread the payments over a longer period of time, which may or may not lead to a higher total debt repayment cost. In many cases, the added cost is a necessary price to pay when considering the lower monthly payment. Some loans may have terms that penalize loan recipients for paying out early.
Creating a Personal Budget as an Alternative
Creating a personal debt repayment budget can be beneficial in cases where the debt is still within a level at which a debtor could conceivably pay all monthly minimum payments and survive safely on current income. In many cases, redirecting the income necessary to pay down personal debt is a matter of limiting luxury spending on expenditures such as entertainment, dining out and unnecessary consumer goods. A consolidation loan becomes a superior financial tactic when it is not possible to make minimum payments every month, even with austerity measures that limit unnecessary expenditures.
Debt Management and Long-Term Success
Having a personal or business debt crisis does not have to be an insurmountable roadblock. Carefully calculating a course of action after weighing all the alternatives will allow virtually anyone to get back to square one and even start turning a profit. Unfortunately, the reality of debt crisis can sometimes mean shutting down a business that is not making money or liquidating a home and downsizing to a condo or rental suite temporarily. The basic premise for long-term fiscal success is to live and spend within one's means.
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