The Truth About Debt Consolidation By Dave Ramsey
Sunday, April 4, 2010, 7:56 AM | 1 Comment
Dave starts out his post with two statements:
Myth: Debt consolidation saves interest, and you have one smaller payment.
Truth: Debt consolidation is dangerous because you treat only the symptom.
That is absolutely true. You pay more in the long run even though your interest is lower. You just stretch the payment over more years than it was originally set for.
That’s good and dandy. The problem I see is that many folks [read millions] have a hard time paying the original monthly installment. They would like that sweet stretch of payment now, this minute. Otherwise, many are in a position to lose all like so many have.
Remember, we must always talk about the present first and then the future. If borrowers have problem with payment now, I am sure they would like to somehow release or relax that burden now than worry about it in future.
Debt Consolidation Example by Dave
Let’s say you have $30,000 in unsecured debt, including a two-year loan for $10,000 at 12%, and a four-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month.
The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn’t it? Who wouldn’t want to pay $460 less per month in payments?
My Analysis
I agree with Dave for folks who are starting out with borrowing money. My blog has so many posts to that effect. But folks have problem now, today. In Dave’s example, if you can reduce your monthly payment by $460 and be able to buy food and other basic necessities of life, then I am all for it.
Sounds great, doesn’t it? Who wouldn’t want to pay $460 less per month in payments?
Folks have problem of paying $460 more in monthly payments today, this minute. If they can stretch it for over more years, I think they would sleep better. Many folks have problems sleeping because of that debt shit they have stepped in.
Regardless how folks got into the debt mess, we must not treat everybody the same across the board. Media have been reporting many times over folks committing suicide, in some cases, including their entire families. Because they could not afford today let alone tomorrow.
We must not let that happen to anyone. One case like that is one too many. I am against debt, period. But there are good debts and there are bad debts. We must be able to afford today but at the same time, we must worry about tomorrow.
Banks and other financial institutions had gotten themselves in a humongous mess. The Government had to step in today and save them from committing financial suicide. That’s the basic Western way of doing things. Support today with tomorrow’s money. That’s the Western way of life.
We must change our mindset
Our mindset in America is set for borrowing and more borrowing. Borrowing money is renting money. If you want to rent something and can’t pay it back, don’t rent it. But sometimes, you have to rent. Make sure that you return it to its original owner and intact.
In a Nutshell
In the final analysis, I agree with Dave. However, there are folks that just are unable to face what happens to them tomorrow. But more than that, they must be able to face what happens to them and their kids today.
When I first came to the States in early 1970s, banks would lend money to car buyers for 3 years, then it was 4 years, and now it is 6 years and more.
Similarly, home mortgage can be for 10 years, 15, 20 and then now these days, 30 years seem to be standard. Granted they are all secured loans, but folks have lost all in secured and unsecured loans. The difference between the two is becoming so minimized now, you lose all in both cases. People have lost their self-respect and self-esteem. What more than that can someone lose?
What do you think?
Throw us a like at Facebook.com/doable.finance
1 Trackback(s)