Biz Development
by Laurus Nobilis

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Reprogramming of the credit, or debt consolidation, is changing of the credit conditions. In most of the cases it means that the credit period is extending. As there is more and more people who can not pay or want to change current payment setup, the banks are offering the possibility to reprogram their dept. The reprogramming is sometimes done through financing the credit through the credit from another bank.

Debt consolidation may look interesting, since you may replace one credit installment with another, lower credit installment. But if you explore the subject deeper you will understand that the interest rate is not lower, as your installment is.

In fact the interest rate is higher, since you pay more to the bank, at the end. Simply, you pay smaller installments, but you pay more, since you are extending the credit period. Debt consolidation is not the instrument that is to help client, but to ensure the higher profits to the banks.

Debt consolidation is dangerous since it does not cure the cause, but only mend the consequences. You have a feeling that you did something good for yourself, but the debt is still there, this time it is higher. At same time, your habits are still the same. You will not leave debts by taking more loans. Credit consolidation will not help you on the long run.

How it is possible that you are sinking deeper to debts even if your loan installment is lower? Take look at the following example. If you have 2 year loan and after 1 year of paying installment you decide to extend the credit period for another year and to reduce the monthly installment. Even if the interest rate is the same, you pay more, since you are extending the period.

On top of this the bank will probably charge you the tax for reprogramming the debt. More you extend your debt, more you ay at the bottom line.

Check the Debt Consolidation Excel example for more details.

It is estimated that in 80% of debt consolidation cases, the debt is growing even more and more. This is caused by the fact that people are changing the credit arrangement, but their spending habits stays. Reducing the monthly installment leaves the space for another loan and there is no end for the debt spiral.