Debt Consolidation

Welcome to Beyond Debt’s first blog post.  This site is about helping Australians work towards a debt free future.  Specifically, this site is about helping people who are having difficulty with their debts, people who can’t imagine being debt free.   Let me assure you there is life “Beyond Debt” (sorry but I had to do that).

I want to make it clear that there are “good debts” and “bad debts”. A “good debt” is a debt for an asset that appreciates (goes up) in value; a “bad debt” is every other debt. Home loans, margin lending loans are “good debt.”  Car loans, holiday loans, using your credit card for day to day purchases are all “bad debts.”

These days, having bad debts has been normalised. “Everyone owes a little bit of money on their credit card.”  In fact Australians owe over $43 Billion on their private credit cards. How did that happen? Well, contrary to what the media is saying it’s not “extravagant living.” They’re not guzzling champagne on overseas holidays. In fact, most people get there by spending 2-3% more than they can afford to year after year. Before you know it there’s $10,000.00 on your credit cards and you’re in trouble. So what do you do? Debt Consolidation?

Debt Consolidation is now talked about like it’s the responsible thing to do if you’ve got a lot of debt. Like getting organised, going to the doctor regularly or getting your car serviced. In reality it’s more like getting open heart surgery. You’ll avoid death, have a slight improvement in your quality of life and feel the effects for years to come. Many people associate debt consolidation with debt reduction, but all debt consolidation does is package multiple debts into one big debt!

In fact, debt consolidation can be one of the biggest mistakes people make. If they’re consolidating debt into their home loan, they’re turning short term debts into long term debts and they will pay back thousands more in interest. Debt consolidation with a personal loan will be paid back over 7 years. Debt consolidation with a home loan will be repaid over 30 years! Sadly, the only thing that will get you out of debt quicker is paying more!

The sad fact about debt consolidation is that in our experience in about 80% of cases people will be in a worse situation just a few years later. Debt consolidation doesn’t change peoples spending habits. Most people continue to spend 2-3 percent more than they can afford to, and they will continue to use the credit cards they put in the debt consolidation loan. We see dozens of cases a week where the client has a debt consolidation loan and has maxed out their credit cards again.

Debt Consolidation isn’t a miracle cure that many people expect it to be.