O que é consolidação de dívidas 2023

When you're in debt, whatever you do it feels like your hands are tied and you can't save. So people think what is debt consolidation How can other debt help?

Of course, you're right to be suspicious, because consolidation can really help or get you into an even more hopeless situation.

This will allow you to pay off your debt faster, but if you go places you don't really need to, you'll end up spending more time paying it off.

So what is debt consolidation, how to consolidate debt, what are the pros and cons and how to find a reputable organization?

What is Debt Consolidation?

This is essentially refinancing: you combine your debts into one payment at a reduced monthly interest rate, taking out another loan. Debt consolidation example: You have three credit card debts:

  1. A: 5,000 reais at 20% per year
  2. B: 3,000 reais at 15% per year
  3. B: 1,000 reais at 12% per year

Every month you deposit 1000 reais for each card, but part of the money for each payment is consumed by interest. When consolidating a debt, you take out a loan in the amount of 9,000 reais and pay all the debt above, receiving an interest rate of 10%. You'll pay more, which theoretically means you'll get out of debt faster.

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The interest rate you can get depends on the type of loan you are getting:

  1. A secured loan is when you provide an asset (like a car or a house) as collateral. If you default on your loan, your lender will take that asset.
  2. An unsecured loan is an unsecured loan. It usually has higher interest rates.
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Problems with debt consolidation

This way of managing finances also has its drawbacks. Think about them before you immediately agree to the “get out of debt in 2 hours” offer.

1. It may take longer to pay off your debt.

First, while in theory debt can be paid off more quickly, in real life the opposite is true. Imagine saving a few thousand in interest payments: what would you spend it on? The bank will likely be the last place you will receive your money.
Willpower is a limited resource, and it's the reason we can't save on coffee, dine at restaurants, or pay off credit quickly. That is, it turns out that in many cases we pay the debt for longer, respectively, we provide more financing.

2. You could lose your house or car.

By taking out a secured loan and leaving something of value as collateral, you can lose much more than a few thousand dollars. When you take out a mortgage, you risk your home. Of course, there are also advantages, such as a low interest rate, but you always need to objectively assess the risks.

3. Your credit history will suffer

It will be harder to take out a loan next time, because the bank didn't earn from you. At the bank, the employees did some work, spent time with you, but they didn't get anything out of it.

What is Debt Consolidation

How do you know if consolidation is necessary?

Debt consolidation can be a great tool, but it's not always the perfect solution for everyone. You can make payments easier, save money on interest, and possibly pay off your debt faster. This path suits you if:

  1. You have high interest debt
  2. You have a lot of high-interest debt
  3. If you have a good credit history (otherwise there may be difficulties with banks);
  4. If you need fixed deadlines: for example, to pay off a credit card debt, you need more willpower.
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Debt consolidation will not work for you if you have a bad credit history, if you are on the verge of bankruptcy, or if you cannot pay your monthly payments.

How to consolidate debt

If you still want to consolidate debt, avoid fraudulent services, which, unfortunately, are now in abundance. They are trying to cheat by hiding additional fees, inflated interest rates and long loan terms.

Calculate how profitable and where it is better to refinance. Know interest rates, maturities, negotiate and close the deal.

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After that, the hard part begins: you have to get rid of the temptation to use your credit cards until you get out of debt. If you want to pay off your debt, it must not increase. Remove credit cards as far as possible. The harder it is for you to get them, the more time you have to figure out if you really need that product or service.

Avoid debt in the future

Once you decide on a debt reduction method, don't stop. Paying off debt is just part of financial education, and the other part is learning how to manage money so you don't end up in the same position you were in before.

Track how much and when you spend. It often happens that several small things pile up, which creep into a round sum. Start saving the money you save by refinancing. This is the best way to avoid going into debt again if you suddenly need to make a big purchase.