Thursday, April 11, 2013

Thoughts on Debt Consolidation

Debt is a common struggle. Particularly here in the United States. It is readily available to nearly everyone. Some of us get great rates because we pay our bills on time, take out reasonable amounts and pay them back. Others have a hard time repaying their debts for various reasons, which range from unexpected expenses, low income, lack of organization and so forth. Those individuals are usually charged much higher interest rates. This can make paying back debt even slower, or harder depending on your point of view.

You might be reading this because you want to consolidate your debt. You might be searching for a miracle to solve all your financial problems. The truth. Do you want to know? The truth is there is no miracle. Sure a few people have won the lottery and a few people received an inheritance. Lucky them, right?

Lucky you, I say. I think you were brought here to read this blog post, because you are looking for a way to fix where you are. That is smart. That is a sign of someone ready to face the fact of where you are financially, and make a plan to change your finances for the better. You are strong, you are determined. You can make the changes you need to fix your financial situation.

Now, I am generalizing, but I really do think everyone can get out of debt. I am not a fan, nor a promoter of bankruptcy. However, if you are determined to make things better, I am a promoter of consolidating debt. If you can, especially if it will save you money AND you won't turn around and rack up more debt.

Hopefully, you have already cut back your lifestyle to make room to pay off some debt. I hope you only have a cell phone or a land line, and not both. I hope you buy used when you can. I hope that your priorities are food, utilities and shelter before all else. You don't need a new lipstick, a new shirt, movie, golf club, or another beer. You don't. You will survive without all the extras. You are on  a new path, one that will lead you to a secure and less stressful future. Sounds nice doesn't it?

So if you have many, many, many bills and they are coming in the mail every day or every other day your financial life is chaos. You need to do some consolidating. Don't use a company to do this. You can do this on your own for free. You need to look at what you owe. You need to know the minimum payment for each debt. You need to know what interest rate you are being charged.

Next, you need to think about what your options are for getting additional credit. This could be the equity in your house. A credit card you already own, or a new one. Student loan organizations often put loans together under a special consolidation plan. You may be eligible for a private loan from your bank or credit union. I am going to ask that you do not borrow from your 401(k), also known as a 401(k) loan. There are many, many problems there. Also, please DO NOT go to a payday loan lender. This is too expensive for ANYONE and in my opinion should be illegal.

I would guess that your highest debt balance, and likely your highest interest balance are the debts that are freaking you out the most. Am I right? I would look into getting this one refinanced or moved in some way to a less expensive option. Tell any lender that you may be speaking with what you are trying to do. You are going to use their loan to pay off another one of your debts. Tell them which one and why. If you can get this most scariest of debts into a lower interest loan, most likely your payment will be less, or you will be paying it off over a smaller period of time. Do not accept the terms of any loan if you will not be able to meet the payment. This consolidation is probably not worth it in that case.

Some of you probably have lots of little debts. A $100 for the dentist, another $55 to the vet, $120 to a department store, make that four department stores. Oh, and that credit card you got to buy new tires. And there are several more too, right? It's can be hard to make payments on ALL of them all of the time. This is where another loan could be opened for an amount equal to all of these debts, so that the cash from it can be used to pay all the little debts off in full. What a relief right? Yes. But you have to find a loan, again, where you can make the payment. If any of the little debt amounts you pay off are on any type of credit must close and cancel the card. You don't want that card to tempt you again. Of course, it won't because you have stepped back your lifestyle and you don't need new shoes, right?

I will tell you that when we had some credit card debt, I was always looking for a new card. Any card with zero interest was a possibility, even if I only had that rate for a few months. It was that much less money that I had to pay to someone else. I wanted every dollar I could squeeze to go to pay off debt. I know that my husband had multiple student loans at one point. I know that we did opt to consolidate them for what was a very low rate at that time. I kept making the same payments, even though the minimum was much lower. That put us paying it off long before the loan ended.

Consolidate your debt if you have to, especially if it helps with your cash flow, but do it smart. And don't ever get yourself into so much debt again that you are worried about making the payments.  And if you can't find any better credit offers, that is okay. Just take it one debt at a time. Pay off the vet today. Next paycheck find another debt you can pay. If there is some you can't pay, then so be it. Take it one debt at a time. If you can send $5, do it. Even small amounts indicate to the lender you are willing to make payments. Make a plan and keep moving forward!

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