Debt Consolidation in India: Does it really Work?
Many of you not have heard the word Debt Consolidation. Let us discuss what is debt consolidation and how it works?
Debt Consolidation means taking one low interest, long time horizon & Asset backed loan (Usually Home) to pay several high interest loans such as Credit Cards, Personal Loans & Car Loans.
What is the advantage of Debt Consolidation Loan?
The debt consolidation loan unifies all the debts of the borrower that one owes to various lenders and pays all of them with a lump sum payment. Now the borrower has only one loan to repay which is the debt consolidation loan.
This type of loan offers a simple solution to the puzzle of money management, thus making life much simpler. Such loans are given after taking into account all outstanding bills and loans and by combining it into a single loan.
Does Debt Consolidation Really Work?
Well, Mathematically speaking this works. Because you are converting several high interest loans into a single low interest loan. But in real life it doesn’t work. Honestly speaking, I have never seen a single person in my life for whom the Debt Consolidation has worked.
Do You know why Debt Consolidation doesn’t work? – Because you haven’t change your behaviour. Personal Finance is a 10% Mind game & 90% Behaviour Change. Most of the people once take the debt consolidation loan, again start scratching their credit cards and taking personal loans. And after few months, they are now in 2 debts, one is the debt consolidation debt and the other is the Credit Card & other high interest debt.
If you don’t change your financial behaviour and money spending habits, Debt Consolidation will never work for you even though Mathematically it works.
Most of the people think that, Debt Consolidation is the solution of all of their Debt Problems. But this is not true. Debt Consolidation just converts your high interest loans into a single low interest Asset backed (Usually Home) Loan. But if you don’t change your bad money spending habits than the Debt Consolidation won’t work for you.
So first of all change your bad financial habits and than go for Debt Consolidation.
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