The Myth of Debt Consolidation

The financial area of debt is clouded with more emotion, misunderstanding, and poor teaching than any other area, with the posiible exceptions of life insurance. Before starting (on debt consolidation), we need to have a clear understanding of debt:

* Debt is never the real problem; it is only symptomatic of the real problem.

* Debt can be defined many ways. I define it as "any money owed to anyone for anything."

There are five different kinds of debt: (1) credit card debt, (2) consumer debt, (3) mortgage debt, (4) investmen debt, and (5) business debt.

The primary economic danger of debt is that compounding works against you rather than for you. For example, a 30-year mortgage loan on a home at 10% interest rate requires that you pay back over three times the original amount borrowed!

The second economic danger of debt is that debt becomes a trap - getting in takes no effort, but getting out can be next to impossible. When they decide to get out of debt, first of all they must stop going into debt. Second, they must begin to pay back the accunulated debt and, all the while, continue to pay interest.

The third economic danger to debt is: debt always mortgages the future. The first priority use of future income must be debt repayment.

Is debt consolidation the way out?

We recommend that, rather than a debt consolidation loan, you go directly to your creditor with the schedule in hand of how you are going to repay the debt.

Action Item:

Debt consolidation. One of the keys to repaying debt is to precommit any extra income or amounts from reduce expenses ro debt repayment.

Calculate your loan interest as well as your compounding interest with our calculators.

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