The Debt Consolidation Myth;
debt management in Canada has become a trendy method of handling debt but may not be the appropriate methode for Canadian’s to handle their debt. In a growing number of cases people will apply for consolidation loans to eliminate their unsecured debt and start with a new slate. even though this takes care of the short term problem it often developes bigger issues down the road. The reasons why this happens are;.
First of all, individuals are creatures of habit. By applying for a debt consolidation loan you’re only masking the ultimate problem, your habits. Although a consolidation loan will clear your primary debt it doesn’t deal with your spending habits. Usually individuals obtaining consolidation loans to pay back their debt end up in twice the debt they started with.
This being the other reason consolidation loans will not work. After people pay back their revolving credit it gives them freedom to available funds, allowing the trap to repeat itself again. Often times Canadian’s wind up with their account maxed out again, as well as, the consolidation loan that they were issued to pay off their debt. The most generic statement I hear as a credit counsellor is “I have to secure a debt consolidation loan to pay off my accounts”, “I do not want to use credit cards again”. In theory this is superb but often times 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
Credit Advisor
Phoenix Credit and Debt Counsellors