Debt Consolidation 101
October 8th, 2007
If you’re struggling to make your bills each month, or have been receiving phone calls and threatening letters from bill collectors, you’re not alone. Americans today have an addiction to credit and many have spending habits that their income simply cannot support.
If you’re concerned about the state of your finances and long to be debt free you’ve come to the right place. This is the first article in a series devoted to sensible debt consolidation and elimination. Debt Mastermind isn’t just about consolidating your bills to make them easier to manage, this is a system for eliminating your debt, and best of all it’s free. Here are the basics you need to know about debt consolidation to avoid being taken advantage of by those looking to profit from the misfortune of others.
What is Debt Consolidation?
Simply put, debt consolidation is taking out one loan to pay off many. Remember that debt consolidation does not eliminate your debts; it simply rearranges it to make it easier to manage. By consolidating your bills you’ll eliminate telephone calls from bill collectors, juggling your finances to pay the most urgent bills, worrying about your rent or mortgage, or simply not being able to pay your utility bill. When done correctly, debt consolidation can reduce your monthly financial obligation allowing you to take back control over your budget.
Change Your Spending Habits First
Before you can benefit from debt consolidation and move towards eliminating your debts you’ll need to take a hard look at your spending habits and make some tough changes. If you go through the process of consolidating your bills to take control of your budget you’ll be much worse off if you continue with the spending habits that got you where you are in the first place. Almost 70% of homeowners in the United States that borrow against their homes to pay off debts end up doubling their credit card debt as little as two years later. Don’t let this happen to you; examine your spending habits carefully before starting this process and you’ll greatly enhance your chances of success.
Pros and Cons of Debt Consolidation
Debt consolidation loans come is several different flavors and knowing which type to choose depends on your financial situation. There area that most people get into trouble with their finances is their use of credit; many credit cards come with extremely high interest rates and if you’re making the minimum payment on your cards you’ll never be able to pay them off.
If you’re determined to become debt free and can make the necessary changes to your spending habits, debt consolidation can be a better choice than declaring bankruptcy. Your credit will improve because the river of negative information filling you credit reports stops, and if you keep your consolidation loan payments current you will build up positive information in your credit reports. The down side of debt consolidation is that you must have sufficient credit and income to qualify for the loans. For many people with poor credit and few assets this can be a stumbling block too difficult to overcome. In cases like this bankruptcy may be the only option.
In part two of this series entitled “Debt Consolidation 101,” we’ll take a look at the different types of debt consolidation loans available and show you how to avoid predatory lenders looking to make a buck at your expense.
Tags: consolidate bills, credit card debt, Debt Consolidation, Debt Consolidation 101
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