How Popular Is Debt Consolidation?

As Americans face a growing mountain of debt, many people seek debt relief. Options include basic budgeting, as well as debt negotiation, refinancing, bankruptcy and settlement. Another option is debt consolidation, which involves taking out a new loan to pay off at least some of your old debts.

Statistics

Statistics regarding the popularity of debt consolidation are hard to find. Common figures give a concept of why debt consolidation may be popular, but don't provide hard proof. For that, you have to grab data on consolidation loans from every consolidation lender. Because lenders start and end business operations daily, and because there are thousands of lenders across the nation, this kind of data is virtually impossible to get. However, looking at individual companies provides estimates. For example, 2010 data from the Prosper Company shows that roughly 45 percent of all loans are for consolidation.

The Repeat Customer Issue

Many people who consolidate get back into debt after consolidation and are more likely to use consolidation again in the future. Customer numbers thus may include repeat consolidators and don't necessarily give you a clear idea of how many people actually are using debt consolidation.

Dave Ramsey, noted financial expert, talk show personality and host of DaveRamsey.com, said that about 78 percent of people who consolidate get back into debt. Chris Viale, manager of Cambridge Credit Corp., estimates a lower figure of 70 percent, according to Jenny McCune of Bankrate.com.

Why People Debt Consolidation

Several factors drive the popularity of debt consolidation. First, debt consolidation typically provides lower rates of interest, which saves you money over the course of the consolidation loan. Secondly, when you consolidate, you start out with a new loan that covers your old debt. You can negotiate the terms of your consolidation loan so that you have a longer or shorter repayment plan, depending on whether you want lower monthly payments or want to repay the debt as soon as possible. In this way, consolidating offers budget flexibility. Lastly, because you take care of at least some of your old loans when you consolidate, you need to make just one payment to the consolidation lender. This makes it much easier to track your debt and consistently pay on time. Consistent payments sometimes boost your credit score.

Considerations

Debt consolidation popularity is linked to the state of the economy, as noted by Arianna Huffington of the Huffington Post, Iris Taylor of the Richmond Times-Dispatch and the Allmand & Lee law firm. When the economy is good, people take on fewer debts, reducing the need for consolidation. When the economy is poor, however, some people have to take out loans and use credit cards to make ends meet. It is also tied to politics. For example, if there is unrest in the Middle East, which provides much of the oil on which Americans rely, the price of oil may rise and Americans may not be able to afford as much without using credit. For this reason, looking at economic and political predictions may give some idea of how popular consolidation will be in the future, as shown by the Atomic5 website.