When you do a debt consolidation, there are several methods. With one, you manage to borrow enough money to pay off all the old debts, and then you have just one bill to remember to pay. Usually this is worked out so that your monthly payment will be for less than the sum of all the old payments before. The catch is that you pay interest for a longer period of time on the new loan. Maybe it will be a bit lower interest rate than the old bills had, but since the overall monthly payment is lower, you know that it will last longer in time to accommodate the payback period. You pay interest over more time, and may lose any economy. You remain in debt longer than otherwise.

Another method of consolidation is one where a third party company charges you a monthly fee and they ask you to submit money every month that goes into a special account they hold for your bill payments. They let this account build up until there is enough to offer a settlement to one of your creditors. The problem is that in the meantime, no payments are made and your credit record will get even worse. This process can stretch out for years and all the while you pay their monthly fee. They may be able to get you some discounts and reductions, which are good, but you may have been able to get this on your own if you had just asked.

Another common financial mistake is using bad loans such as poor credit unsecured loans. These loans carry extreme interest rates and will almost always cripple your cash flow. The last thing you want to do when you already have financial issues is to start paying high amounts of your income to interest.

If you go to the link above, it is an interactive chart. However, I just took a screen shot to show something. If you look, you will notice that every downturn is small and short followed by long periods of growth. Yes, this economy is bad at the moment. However, it is not the end of the world. We will see another period of growth soon.

What these short periods of recessions tell us is that we need to be prepared. Clearly screaming at us that an emergency fund is needed. As well as being diversified with our investments. As you get closer to retirement age, you should be moving away from stocks. All too often we get complacent in the periods of prosperity, only to panic at any hiccup. Plan ahead and you will be just fine.

-Kevin