Personal Debt Consolidation: Does it Make Sense?


At one time, responsible citizens would have been horrified at the prospect of purchasing goods on credit. Newly engaged couples, or those just embarking on married life, tended to believe that the only way to make new purchases was to diligently save funds over a period of time, and then pay cash for them.

Our attitudes towards credit have changed significantly over the past two or three generations. Credit today is widely available for almost any purpose, and banks and other financial institutions are willing to provide funds to almost anyone, in the form of loans, credit cards, and overdrafts. The problem is that too many consumers today are provided with credit that they cannot handle.

Consumers of today are frequently faced with difficult choices concerning their financial responsibilities. They need to be much more credit conscious than their grandparents were, because lenders are frequently willing to provide funds regardless of the borrowers’ current debts. The onus of debt repayment is placed firmly on the shoulders of the consumer, and if a new loan or credit purchase creates an impossible financial burden, that is solely a matter for the consumer. But excessive debt can place a family in serious difficulty, and sometimes it becomes necessary to resort to unusual measures. Responsible citizens, however, take action long before a desperate situation arises.

No one should take on new financial responsibilities without first carefully examining the current financial situation. Financial advisors can give precise information about the debt-to-income ratio that is recommended for all consumers, and it is important to seek such advice before accepting new commitments. If there is room for new credit purchases, the variations in available interest rates should not be ignored. Store credit cards, for example, are notorious for charging excessive interest on credit purchases, as much as 35% or more in some stores, and these should be avoided. Reputable credit cards with low interest rates, or small loans from a bank, are much better choices.

Even with the best of intentions, however, it is possible for things to get out of control. Some purchases are absolutely essential, and families can find that their credit commitments have become unmanageable. When an excessive portion of the family income is used to make monthly payments, it is time to take serious action and examine the options available. A family in this position must begin by clearly analyzing and writing down details of the financial position, so that there is no doubt about how money is being spent and all payments are accounted for.

It may be possible to ease the financial burden by reducing payments. Consumers in difficulty should first of all contact the creditors to explain the current financial situation, and to negotiate new payment terms if this is possible. This is far better than simply not paying, or trying to juggle payments to different creditors each month. Most creditors appreciate this contact, and they are anxious to work out a manageable plan with their clients. If the amount of debt is too much, however, the only alternative would be to apply for a consolidation loan.

A consolidation loan is essentially a loan that is large enough to pay off all other debts. This can be a life saver for many families as it allows them to make only one monthly payment, and it gives them new financial security. Banks and other lenders are usually quite open to loans that cover all other debts, especially when their client’s credit rating is good.

The consolidation loan can be an excellent choice for families that have become overburdened with monthly payments. They should not hesitate to examine the possibility of applying for one, as it could be the final solution to their financial difficulties.

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