A debt consolidation loan is when you borrow money to pay back the money you already borrowed. Genius.
The pitch goes like this. You've got credit card debt at 24 percent. You've got a personal loan at 18 percent. You've got a payday loan at a rate that would make a loan shark blush. Some bank steps in and says hey, we'll give you one loan at 12 percent to pay off all that garbage. You'll save money. You'll have one payment. Your life will transform into a Cialis commercial.
What they don't mention is you're still in debt. You've just rearranged the deck chairs. You had five holes in the boat. Now you have one bigger hole. Congratulations.
The people who need debt consolidation loans are the same people who got into debt in the first place because they can't budget or stop buying shit they don't need. Handing them a fresh loan is like giving a gambling addict a line of credit at the casino. Sure, technically they could use it responsibly. They won't.
But banks love this product. They get to look like heroes while charging interest on money you're using to pay interest. It's interest on interest with extra steps. It's financial inception except everyone's still broke when they wake up.
The funniest part is the phrase "streamline payments." That's corporate speak for "you were juggling five disasters and now you're juggling one." You haven't fixed anything. You've just consolidated your failure into a single monthly reminder that you f*cked up.
Debt consolidation loans don't solve debt problems. They solve organizational problems for people who are bad at being in debt. If you need a loan to manage your loans, the issue isn't your interest rate.
Photo by Towfiqu barbhuiya on Unsplash
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