Debt Consolidation Do's and Don'ts
Debt Consolidation Options
In these challenging economic times, even though unemployment has fallen from 10% to around 7.6%, 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 credit card debt that was already high. That debt has only grown as the economy has suffered. And although the economy is slowly getting better, and unemployment is dropping, many problems remain.
If you have too much debt, and struggle to fall asleep at night because you’re worried about how you’ll ever pay it all down, then it’s time to take a serious look at debt consolidation. You can work on consolidating and paying down your debt on your own, or you can work with an outside company. Whichever route you take, there are certain strategies to keep in mind to make resolving your debt problem easier.
Most importantly, 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, however 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.
Shop Around For The Best Interest Rates
Next, shop around for the best interest rate if you do decide to take out a home equity or debt consolidation loan. 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.
Research Credit Counselors And Debt Consolidation Companies
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.
Resist Bad Spending Habits
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.