Consumer Debt Consolidation: Lessons from Greece
There are two kinds of people who tend to apply for debt consolidation loans in the UK. One is the consumer who realises he/she can save money by consolidating higher interest debts into a single loan offering a better interest rate and more comfortable terms. The other is the kind of person who turns to a debt consolidation loan only after reaching the critical point of near financial collapse. Both consumers can borrow to pay off other debts, but the latter may not be able to save his or her finances anyway.
A good way to look at debt consolidation at the consumer level is to compare it to the ongoing financial crisis in Greece. Many of the same conditions retail borrowers face in debt consolidation exist on a national level in Greece. Understanding the ongoing Greek crisis may make it easier to understand the proper way to look at consumer debt consolidation loans in the UK.
National Borrowing and Bond Payments
National governments looking to raise money above and beyond what tax revenues generate either borrow from international banks or issue bonds. In some cases, they do both. That's where Greece is right now. For more than a decade, that country has been spending money it does not have, supplementing its budget through bank loans and bonds. As things now stand, Greece currently has roughly â?¬7 billion in bond payments due in just a few months. It does not look like they will make those payments, threatening to default instead.
Just as we witnessed two summers ago, Greece is now relying on its partners in the European Union to bail them out. They want billions in rescue funds to both make their bond payments and subsidise their budget. If the EU does not comply, Greece could collapse financially. That could lead to so much stress on the euro that it eventually collapses as well.
The situation in Greece can be reduced to three significant and persistent problems:
- Ongoing Spending â?? Greece continues to spend above and beyond its means because government leaders do not have the political will to put an end to their overspending. Citizens will not put up with it, either.
- Entitlement Mentality â?? Greek citizens are not thrilled about austerity because multiple generations have been raised on the entitlement mentality. Many believe they are owed a comfortable financial position simply because they exist.
- Continued Lending â?? The European Union and IMF continue to enable Greece by sending more money their way every time they face default. Until outside sources finally cut the purse strings, Greece will not stop asking for handouts.
Individual Debt Consolidation
If we take the three big problems in Greece and apply them to consumers, it becomes clear that there is a right and wrong way to go about debt consolidation. First, the consumer who finds it necessary to look into debt consolidation because finances are severely stretched is one who also needs to look at spending and find ways to slash it is much as possible. Even if that means some level of discomfort until debts are paid off.
Second, the same consumer must come to the understanding that no one owes him or her anything. He/she does not deserve debt relief simply because of his/her financial struggles. Quite to the contrary; the debtor owes his/her creditors proper repayment.
Third, retail banks are not as free with their money as the EU and IMF. There will come the point when lenders stop lending to customers who cannot make repayments. So it's imperative for consumers to get debt consolidation right the first time.
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