One of the biggest problems of today is world is unruly credit card debts & one of the easiest solution suggested by most of the financial planners is Lower Interest rate loan to pay off high interest credit card. Well, on the face it looks like a pretty balanced equation but the million dollar question is - Does the loan consolidation actually helps you to pay off your debt or is it a trap, leading to more serious consequences? Loan Consolidation actually means that you get a loan at a lower interest rate to pay off all your credit card debts, sometimes it can be more than one credit card. It is beneficial because, lower interest rate means lower EMIs (Equated monthly Installment), one payment instead of several payments & hopefully an earlier repayment of debt. But, in this perfect win-win situation, there is a flaw & it is the fact that when people take a deep breath of relief for getting out of their credit debt, they do not realize that they have not paid the debt actually, they have just changed their creditors. On top of that is the fact that sometimes they are overly pleased to see zero dollar credit card bills & so are easily lured by shopping temptations which eventually lead to a place deeper in the debt. According to Chris Viale, general manager of Cambridge Credit Corp (A non-profit credit counseling agency), 70% of Americans who take out a loan to consolidate debt end up with the same or more debt load within 2 years. As per Reserve Bank of Australia, Australians have nearly $ 21 billion in credit debt. In terms of Management Gurus, loan consolidation is just a short term goal; it is not a vision & hence, is not a permanent solution. It might work well for people who use all their self control & win over their temptations, for most of the people; it is a trap that ends up in a deeper pit of debt. People have to realize that mere shuffling of loan, would not help them to get out of debt, they need to plan well in advance & most importantly, they have to stick to their plans.
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