Have a Financial Game Plan After Debt Consolidation
For individuals struggling to manage the burden of debt, one of the tools that can be used to help lighten that burden is debt consolidation. But,
What is Debt Consolidation?
When you consolidate debt, several debts or loans are combined into one low payment. This can help to lessen three of the worst issues with high amounts of debt:
- High interest rates. Some types of debt have very high interest rates. Individuals who have high credit card debt often see their debt grow faster than their ability to pay it off. A consolidation loan may allow you to get a lower interest rate, which will save money over the long term.
- High monthly payments. People with several loans or credit cards often struggle with high minimum payments. Debt consolidation may lower your monthly payment and give you a chance to pay off your debt in a reasonable amount of time.
- Bill confusion. Too many bills? Forget to pay one or two of them each month? That’s a problem for many people who are struggling with too much debt. Consolidation reduces the number of bills to one.
Debt Consolidation Will Not Solve Your Financial Problems
You have consolidated your debt, begun to pay down your bills, and you may be seeing the light at the end of the financial tunnel – but you have not solved your problems. Just because you have figured out a way to reduce your interest charges and lower your payments, doesn’t mean all your financial woes are over.
Just like when someone takes an aspirin when they have the flu, debt consolidation treats the symptoms but not the underlying disease. The debt is gradually being eliminated, but the problems that caused the debt in the first place need to be addressed too.
Excessive debt is a symptom of overspending and under saving. Many financial coaches advise their clients to avoid debt consolidation because it doesn’t attack the real problem. Here’s a good plan from About.com for eliminating your financial burden without using debt consolidation: http://credit.about.com/od/reducingdebt/ss/debtplan.htm#step1
The Only Way to Get Out of Debt is By Changing Your Habits
Though debt consolidation can be a useful tool for many people, it must be accompanied by a financial game plan. You should create a written game plan, similar to a business plan, and stick to it. Your game plan should include:
* Budgeting – learn how to write a budget and stick to it month after month.
* Extra income – do you need an extra job to pay for monthly expenses?
* Learn how to live cheaply – stop eating out, use coupons, look for sales, and shop for the
* Track your spending – yes, you have to write down everything you buy.
* Make savings deductions automatic – for a retirement, a college account, or a rainy-day fund.
* Extra help – seek professional help to teach you healthy financial habits. The cost of
a financial coach might be worth it if you’re struggling to change your behavior.
You can find many great plans for budgeting and fixing your financial health if you spend a little time searching online. A good article on secrets to creating a workable budget can be found at Bankrate.com: http://www.bankrate.com/finance/financial-literacy/secrets-to-creating-a-budget-1.aspx
Debt consolidation is a great way to alleviate the burden of debt, but it should only be used when you are also planning to change your unhealthy financial habits. Debt consolidation is like an aspirin – it will help you feel better for a while, but you must treat the underling disease if you really want to solve your financial problems.
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