A History of Debt Consolidation

Debt can be a tricky thing, but you can help avoid larger problems with debt by following these simple rules.

A Debt Consolidation Primer

In these challenging economic times, with the national unemployment rate still hovering near 10 percent, housing values still falling and employers freezing any pay increases, it’s little surprise that a growing number of consumers are looking into their debt consolidation options.

Many consumers entered the Great Recession with plenty of credit card debt. That debt has only grown as the economy has suffered.

If you have too much debt, if you struggle to fall asleep at night because you’re worried about how you’ll ever pay it all down, it’s time to take a serious look at debt consolidation. You work on consolidating and paying down your debt on your own or you can work with an outside company. But no matter which route you take, there are certain strategies you should keep in mind to make resolving your debt problem an easier task.

Most importantly, you should always continue to save at least some money even while you are paying off your debt. It can be tempting to take all of your extra cash and sink it into paying off your debts. But this leaves you without a financial cushion to draw on in case of emergencies. What if you suffer a serious injury or illness? What if you suddenly lose your job? You’ll need that financial reserve to get through the crisis.

Next, make sure you always shop around for the best interest rate if you do decide to take out a home equity or debt consolidation loan to help pay down your debt. Even small differences in interest rates can make a big difference when it comes to eliminating your debt more quickly.

If you are struggling with your debt and you can’t see any way out, it might be time to work with a credit counselor or a debt reduction company. These professionals might be able to teach you how to change your spending habits. They might also be able to help you negotiate settlements with your creditors or set up alternative repayment methods.

Just be careful: Make sure you do your research before signing on with counselors or debt consolidators. Some of these less ethical individuals will charge you high fees for their services. Debt consolidators might charge exorbitant interest rates for any debt consolidation loans they draft for you. Make sure to get in writing exactly how much these companies are going to charge you.

Once you do get some help, make sure to resist the temptation to put even more debt on your credit cards. Doing this will only prolong your financial troubles. Live by a new rule: If you can’t afford to pay for something in cash, you simply do without it. It can be a tough rule to follow, especially in a society in which instant gratification remains the norm. But if you resist the urge to keep spending, you might be surprised at how quickly your financial situation improves.

Finally, once you do begin paying down your debts, don’t fall back into bad habits. Pay all your bills on time, each and every month. This will help your three-digit credit score – the number that mortgage, auto and other lenders rely on to determine if they will lend you money – gradually improve.

The burden is on you to become a more responsible consumer. You can get help for managing your debt. But no one can help you live debt-free if you refuse to change your bad spending habits.