Monday, June 1, 2009

Credit and Debt Consolidation

During my grandfather's time, getting a loan is dependent upon trust. They didn't even have written contracts in those days. If you keep your word and pay on the promised date like an honorable Chinese should, you can be assured that you will be able to borrow money again the next time you need it. Word also travels fast, so if you build a reputation of being a deadbeat and not paying off your loans, the whole Chinese community here in Manila would know about it...and there goes your chances of borrowing more funds.

It's pretty simple and straightforward, but somehow, it's no longer applicable in the present society. First and foremost, there are a lot more to debts nowadays than it used to be. You didn't get into credit card debt before because plastic was unheard of in those times. But now they're probably the biggest source of consumer debt. I just realized lately that there are so many different types of loans one can avail of -- housing loans, car loans, personal loans, business loans, etc. from different banks and financial institutions. Which is all well and good if you budget well and pay your amortizations on time. However, if you have some trouble with your cash flow right now, that may not be the case. While you struggle to find money to pay off your loans, it becomes bigger due to the compounding nature of loans. That's why in these hard times, you do need to look into things like debt consolidation in order to make you life much simpler. You can actually get debt consolidation loans so that you only need to pay one institution instead of paying several ones. The advantage to this is you only need to pay one interest, usually at a lower negotiated rate, than several different interest rates to different institutions.

Of course, it's still best not to get into debt, but sometimes money is tight and you have no choice at the moment. Just be sure that you do not go overboard and get buried in debt that you cannot eventually pay off in the future.