Debt Consolidation

It Can Work If You Work At It

Debt consolidation seems easy enough. You’ve got credit cards, department store credit, a car loan, maybe even a personal loan too. You are making many different payments, which are taking a big chunk of your income.

On top of that, those balances seem to be going nowhere. So...

Why not put all of your debts under one umbrella and make one (lower) payment? After you read this article if you think you can make it work and would like to investigate some ideas consider a high interest credit card debt consolidation. That lower payment will free up some money each month.

Sounds great. What could be wrong with that?

Well, nothing and a lot.

It all depends how you lump those debts, the type of loan or program you use to consolidate debt, and what you do with those newly zero balanced credit cards and the extra money you have freed up. You can really work hard to eliminate your debt or you could end up in serious trouble. Let’s compare...

 Let's Visit Trouble First

You want to recognize it so you can avoid it. If you choose the most common route you will secure your consolidation loan with your home, usually with a second mortgage. This makes sense, since you can usually get a lower rate on the loan and the interest may be deducted off your taxes (check with your tax advisor). 

But don't forget about the fees for one of these debt consolidation loans, they can add up in a hurry. And do you really want to pay for your morning coffee for the next 5 to 10 years? Also, if you can't pay do you want to lose your house?

Here is something else to worry about. You have "fresh" credit cards with zero balances. If you are not very careful and have a plan in place you could end up with twice the bills you had before you used debt consolidation...

Most people have been living beyond their paycheck. Most spend about 10% more than they make on a monthly basis. The only way this is possible is with credit cards.

They are renting a lifestyle, not owning and paying for it. It takes only a few months of this type of behavior to max out their cards again. Then they have new balances to pay and their debt consolidation loan too. They have reached a dead end. Now..

A careful plan can help YOU make this (debt consolidation) work.

Get Rid Of Them 

First you must get rid of your cards.  They are the reason you are looking to consolidate your debt in the first place. You don't want to end up here again. Call your credit card companies and cancel your accounts. Then you cut up those cards so you can't even recognize them. You do this so you are not tempted to use them.

Most credit card companies will reopen your account if they receive a charge on your account. Be sure to also cancel any automatic payments you used your cards to make for the same reason, it will reopen your account.

You may keep one for the times you need a card, such as to rent a car. This card should be left at home locked away somewhere. You should not carry it around with you. This is worth repeating,  

YOU SHOULD NOT CARRY IT AROUND WITH YOU. 

 This is for your own protection, to save yourself from making any impulse purchases. This leaves you with...

The same amount of debt and (remember that smaller payment) more money each month. With this breathing room, no matter how small, you need to attack your new debt consolidation loan.

Here is a way to do it...

Take half of the money left over and save it. Put it in the bank, the credit union, whatever. You need to start saving.

Pay, Pay, Pay

The other half of the money you should add to your payment you send for the debt consolidation loan to be rid of it sooner.