The Debt Consolidation Fable;
debt management in Canada has become a accepted method of dealing with debt but may not be the advisable solution for Canadian's to control their debt. In a growing number of cases Canadian's will apply for consolidation loans to control their debt and start with a new slate. Although this takes care of the current problem it often causes much larger circumstances down the road. There are two reasons why this happens.
First off, Canadian's are creatures of habit. By a consolidation loan you are only avoiding the fundamental problem, your habits. Although a debt consolidation loan will repay your original debt it wont deal with your spending habits. Commonly Canadian's obtaining consolidation loans to pay back their debt end up with twice the debt they started with.
This being the other reason consolidation loans do not help. Once individuals eliminate their credit cards or lines of credit it gives them freedom to available funds, allowing the process to start over again. Often times people wind up with their account at the limits again, as well as, the consolidation loan that they were issued to eliminate their debt. The most typical comment I hear as a financial counsellor is "I need to obtain a consolidation loan to re-pay my debt", "I do not want to use unsecured debt again". In theory this is fine but more often than not this doesn’t happen
Unless an individual is prepared to tackle their overall problem (i.e. their spending habits) they will not succeed with a debt consolidation loan. In actual fact this is one of the main reasons that the banks have stopped issuing debt consolidation loans. They have, for the most part, stopped this because they recognise that this is only feeding the problem and not solving the problem. If you truly want to deal with your debt, cut up your credit cards, stop access to any revolving credit, make your monthly payments to pay the debt down and track your spending. It is only through the tracking of your spending habits that you will truly understand the fundamental issues of your debt. In order to deal with your debt problems, you must first understand how you got there in the first place.
If you want to live debt free you must recognise your unnecessary spending habits and make changes to eliminate them from your life. If you were to ask me what lesson I teach my clients the most, it’s how to track their spending and identify unnecessary spending.
Greg Martin
Financial Counsellor
Phoenix Credit and Debt Counsellors
No comments:
Post a Comment