How to Avoid Debt Consolidation

Debt consolidation is not necessarily a bad thing. In fact, in many situations it can be very beneficial to you and your situation. Because of all of the different forms of debt that you can get into, sometimes, debt consolidation is the only way for you to pay for all of them. In order to better understand what debt consolidation is what it can do and what the purpose of it is, you need to understand a little bit more about the concept and how it can be accomplished.

A Common Scenario

The first thing that you will need to understand is the basic process that debt consolidation really is. In order to understand it, let's look at a hypothetical situation: Say you graduate high school and are on your way to college. However, you find that you do not qualify for any grants and all of the scholarships that you applied for are not applicable for your situation so you don't get any. At the risk of losing your college education and having to drop out, you apply for student loans. Several weeks later, you are approved and get those loans and then increase student loan amounts if this amount is not sufficient.

Several years later, when you are driving to class, your car breaks down. After speaking to a mechanic, you learn that your transmission is fried and it would cost more to replace the transmission than it would to purchase a new vehicle. You go car shopping the next day and pick out a nice car that you can afford payments on. You take out a car loan.

During that time, you also find that college life is expensive. You get a credit card to pay for outings with friends, quick meals at restaurants and other things that you may not necessarily need, but fun things that make the college experience more enjoyable. So, you accrue a large amount of debt on credit cards.

The Benefits and Penalties

After you graduate and several months into getting your first job, you get your student loan expected payment bills. Shortly after, your credit card company sends you an overdue bill that is nearly as much as the car payment that is due in just a few weeks. After paying all of these bills in addition to your living expenses, you find that your paycheck is not enough to cover everything. If this is the situation, you can get debt consolidation. Debt consolidation will take your student loans, car payments, credit card debt and any other debts that you might have and pay them off. Then, you will only have to pay one loan off rather than having to pay multiple ones off in different venues with varying interest rates. Basically speaking, debt consolidation makes it to where you are only writing one check per month rather than seven. Though it is not ideal because you are still having to pay off debts, it is much preferable than having to pay many different people varying amounts based on financial decisions you made in college.

How to avoid debt consolidation should always be something that you think about. If you do not have the debt that would require consolidation, chances are you are not doing terribly financially. However, if the time comes when you find that you do need to consolidate your debt to make it more manageable, you should consider this process as a valuable resource that you can take. Though no one wants to get into a situation where they have to consolidate debt, sometimes, when it is necessary, debt consolidation an actually be a life saver for you and your finances.