April 23, 2014
How Debt Consolidation Can Improve Your Finances
One of the most frequent issues we see customers dealing with at our Oklahoma City buy here, pay here dealership is holding too much debt in too many places. The vast majority of customers with bad credit are not bad people; they’ve just made some mistakes with their credit. At The KEY, we try to help our customers manage their credit card debts and loan payments, and one way we do this is by suggesting debt consolidation.
When you consolidate your debts, you take out a loan that pays off most or all of the debts you currently have in exchange for a single large loan with one institution. So if you consolidate your debt with your bank, for instance, they’ll pay off your three $2,000 credit card debts in exchange for you taking out a $6,000 loan with them. (In reality it’s a bit more complicated, but basically the same.)
Debt consolidation can be a good idea for many people who are having trouble managing their debts. The biggest advantage of consolidating your debts is convenience: By putting all your debt together, you eliminate the need to track and pay multiple payments to separate lenders or institutions.
Another benefit of debt consolidation is that it often results in lower payments for our used car dealership customers. A consolidated loan often carries a lower interest rate or lower monthly payment than the total of the loans it replaces. For example, if you currently have three credit cards and must pay $50 a month on each one, you pay $150 total. But with a consolidated loan, your total payment may only be $100 a month or even less.
With a consolidated loan, you’re actually able to reduce pressure on your budget and free up more money for living expenses and current needs. This makes consolidation a good option for many customers with lots of debt in different places.
However, consolidation is not a cure-all for credit woes. Even though it can lower your overall payments, a consolidated loan does not mean your debts are paid off. This causes problems when customers see a consolidated loan as a lower priority, and start charging again on the credit cards or loan accounts that the consolidation paid for. In some cases, this can lead to a “debt cycle,” where customers keep consolidating more and more debt from different loans or credit cards. This leads to a huge debt load for the customer.
When you consolidate your debt, it’s important to remember a few basic pieces of advice:
- Consolidating might lower your monthly payments, but it does not lessen your responsibility to make the payments.
- The “extra” money from your payment savings is not really extra money for you to spend how you wish. Use it responsibly on things you need.
- You should try to pay off your consolidated loan quickly. Don’t view the loan as an escape from debts, but rather as a second chance to manage your finances better.
The KEY is not just Oklahoma City’s number one buy here, pay here car dealer. We’re also a partner that helps you manage your finances and get your life back on track. Our financial and life counseling services continue to help scores of Oklahomans, and our quality used cars provide them better opportunities. Take a look at our whole inventory online, or visit our Facebook page for special offers!