Debt Consolidation.

By: Alan Jenks

Why bother, I just have to pay the same anyway? This is what they hope you will say. Who are they; Banks, trust companies, insurance companies and credit card people? Read on and I will talk about how you can get some leverage with your debt and pay less in the end. It seems we borrow a bit from this company and that company. Many of us only think in terms of the purchasing price of whatever it is we are borrowing the money for and not the real cost. You may not think of it this way but every time you use a credit card, get a financed car or buy some furniture, you are drastically increasing how much you’ll have to pay back. It is the interest that you need to watch out for. By now you’ve heard that you’ll get rich by using the law of compounding but it is the same law of compounding when applied to the interest you’re paying that will keep you broke and in debt.

Some companies legally charge interest rates just, and I mean just, below the line when it becomes loan-sharking. This is about 28%. Look at it this way if you owe a dollar, they charge you .28 cents. Even if it is 15% or 10% that is a lot more than say the loan on your house costs you. Before you buy something, ask yourself, “would I still buy it if the price was 28% higher?” It won’t seem like such a deal.

Debt consolidation is a damage control action. You can’t change the fact that you borrowed all that money. What you can do is try to get the interest rates down to the lowest rate possible. The idea is to use consolidation to get all your debts under one payment to one company. Think about this, if you pay a company extra (the interest) every month is that like you paying them a paycheck? When you owe someone money you are working for them. You go to work and someone pays you, you do not keep that money, you must pay it to someone else. Now that person or company has the money you earned for working, so in fact you are doing your work for them. When I realize this it changed my spending habits forever.

How many companies would like someone to give them money every month without them having to do anything but lend them some money? They likely borrow from someone else at 4% interest and you pay 10-28% interest. Everyone would love that arrangement. The hard reality is you’ve put yourself on the wrong side of this arrangement. Go to a lender and tell them you have a substantial amount of debt. When you ask for a debt consolidation loan you’re telling that lender, “hey I will work for you, how much do I have to pay for that privilege?” Depending on how well you negotiate you can normally get a much lower rate of interest on a larger amount of money than several small debts.

The lender is happy because no matter how low their rate is compared to your last lenders they are still making money on you. You are happier because you are paying less in interest and with the money you saved you are paying off your principal directly. Be smart, be wealthy.

Larry, Alan & Ward are the Three Amigos who developed simple strategies for debt management. Learn their strategies at http://www.winthedebtgame.com

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