When considering the strategy of debt consolidation one must be very disciplined before “pulling the trigger.”
Presumably, the goal of taking this action is to consolidate several loans and/or credit card accounts into a single, lower interest rate account. Sounds good, right? Yes, if the person is disciplined and focuses on following through by eradicating that debt.
Too often, however, the undisciplined person consolidates their debt (all good, so far) but then pulls out that credit card (I have plenty of “available credit”) after seeing a shiny new object (watch, pair of shoes, electronic device or tool) that they “think” they must have. And, they continue accumulating debt. The result: they are worse off than they were before (further in debt).
For those undisciplined in this matter, prior to consolidating debt you are encouraged to:
- Think twice, even thrice
- Take steps to limit the ability to increase debt. This could include cutting up all but one of the credit cards. And, the remaining credit card can only be used wisely and paid off each and every month with the exception of an absolute emergency (i.e., the car broke down and I must get to work).
If you are prepared to pull the trigger on debt consolidation, there is an option that many do not (yet) know about: peer-to-peer lending. In a nutshell, peer-to-peer lending is a relatively new concept which is designed to bypass banks, streamline the process for (reasonably good) borrowers to obtain loans, at rates “more reasonable” than banks. And, investors are able to fund these notes (loans) to receive reasonable rates of return (much better than what you might receive by leaving cash in the bank, in a CD, etc.). The peer-to-peer lending company that I am experienced with (as an investor) is Lending Club. You can learn more about them (from a potential borrower’s perspective) by clicking on the image below.
I will likely write a future post on Lending Club, for the investor. For now, if you’d like to learn more about them (from a potential investor’s perspective) click on this link.
In closing, debt consolidation “can be” a good strategy in an overall debt eradication plan. You can simplify (by only having a single monthly payment) and reduce the cost of debt. All good, towards reducing the timeframe to your debt freedom. Just use care not to create an escape hatch that provides an easy opening to increase debt which will only elongate the time needed to achieve debt freedom. Stay the course on your debt eradication plan. You will not believe the absolutely amazing feeling you will have with ZERO DEBT! It is only at this point that we are no longer a slave…