The last couple of weeks, I have been hearing people talking about debt problems. These same people are discussing on ways to just get by with the monthly payments.
One topic that caught my attention was the mention of consolidation of debts. This method is one where a debtor approaches one party (usually a financing company or bank) to which another indebtedness is applied for, the amount of which is more than enough to cover the total of a number of debts for the purpose that monthly payment is concentrated to one party.
Similar to how I advised people who approached me for counsel, I discouraged them to resort to debt consolidation. This is a quick fix. I believe that nothing instant is worthwhile.
The biggest danger that this debt consolidation can bring is the artificial facade it may create in the borrower's perception. After several installments paid for by the borrower, a sense of a reduced debt might be felt by the borrower, thereby signalling his emotions to again swipe those cards, or apply additional loans.
A slow and disciplined elimination of several loans is favored. Along the way to eliminating your loans, a very valuable lesson could be learned.
A very effective way is one that I learned from Dave Ramsey's Financial Peace University called debt snowballing. This procedure suggest that loans should be listed in an ascending order based on loan balances. Elimination starts from the loan with the least balance. Once the first one is paid off, the monthly payment that is used to pay for the eliminated loan will be added to the next loan in the list. The same procedure is being followed until everything in the list would have been totally eliminated.
The key to unlock the chains of debt is not how much cunning or calculating one is, but how one behave. It is not all brain, but behavior. Hence, any quick fix like debt consolidation, as the majority may calculate is not a healthy solution. A Slow, steady and disciplined way like snowballing is a very effective solution.
Patience and perseverance is one valuable virtue anyway.
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