Debt Consolidation

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Debt Consolidation - Use caution with this option

Debt consolidation is the solution people automatically tend to think of when facing credit card debt problems and wanting to eliminate debt. At first glance it makes sense to lump several smaller, high interest-rate, accounts into one monthly payment at a lower interest rate. When considering debt consolidation caution should always be used because you are only treating the symptom.

Let's say you owe $25,000 on five different credit card accounts. The average rate of interest is 25%, and you're paying $525 in minimum payments every month. Under this circumstance, it will take around 20 years to retire the debt, and you will have paid back more than $120,000! So why not consolidate debt by borrowing $25,000 from a lender at a much lower interest rate, say, 12%? Then it will take less than six years to retire the debt and you'll have paid back around $34,000!


This is not the best means to eliminate debt, and should be looked at very closely if you are considering this method. As you can see from the example you have taken action, and think you’ve done something, but really all you have accomplished is moving the debt from one place to another. You have not eliminated the debt problem or the habits that caused it.


It sounds great in theory, but there's one huge problem; who will lend you the money at a lower interest rate? The odds are stacked greatly against your being able to borrow enough money to pay down the balances of your credit card debt unless you borrow against your home.


This is a very risky strategy, but it's quite popular of course because of the lower interest rate. By doing this you will have traded unsecured debts, which are backed only by your signature and not tied to your house or property, for secured debts, which are usually backed by your home.


That means if you run into trouble again in the future, and have difficulty making the payments on the new loan you could lose your home to foreclosure! It's almost always a bad idea to pay off unsecured debts (like credit card debt or medical bills) by borrowing against your house. Remember, you got into trouble in the first place by borrowing money, right? You cannot borrow your way out of a debt problem without creating another debt problem!

Debt consolidation is the process of combining a number of debts into one major debt payment. The advantage of doing this is to save money on interest payments. Instead of paying off a number of different interest payments every month, you will only pay one central interest payment. Normally this means that the interest payments are lower and your debts can be paid off a little sooner.
Sounds good, right?

The solution we offer at Liberty Financial is much better. The problem with debt consolidation is that it doesn't remove the debt. It simply moves it to a different location. Depending upon the number and amount of debts owed a consolidation loan can be quite expensive. Meaning you won't be able to fully pay off the loan for many years to come. In the meantime, you will be accruing more debts. It's not as though your payments for life's necessities will come to a standstill.


You could still be building up more credit card debt, and perhaps new car payments or mortgage payments in addition to the amount you will owe for the consolidation loan. As you can see, this isn't the most effective way to eliminate debt.




Not everyone will qualify for a debt consolidation loan. Our service is built for people in dire economic circumstances--$10,000 in debt or more. People in this situation might be turned down for consolidation. Instead, try our service--we can reduce debt significantly by attacking the problem, the principal balance to eliminate debt. This is the key to becoming financially free!


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