Things to Consider Before Consolidating Your Debt

 

Tired of being in debt all the time? Is your paycheck just going to your creditors? Are your creditors hounding you day and night? Then you have a debt problem. And realizing this just in time to be able to solve it without the loss of your dignity is the best thing that you have done for yourself.

 

If you find that more than 20 percent of your net income is being used to service debt, then it is time to review and revise your spending habits. If you believe that you can solve your debt problem by consolidating it into one account only, here is a rundown of things that you can do before you decide to consolidate your debt.

 

1. Stop denying that you don't have a big debt problem.

 

One of the leading causes of mounting debt problems is that individuals deny that they have debt management issues. They have no idea of the total debt they are paying off each month because of several creditors being dealt with. So the first thing to do is list all debts according to the outstanding balance and sum up to find out how grave or light the debt situation is.  If possible, enter the information into a computer spreadsheet so that you can adjust it as the balances rise or fall.

 

2. Live frugally. Stop spending on unnecessary things.

 

However you say it, the bottom line is that once you have acknowledged the gravity of your situation, modify your spending habits. Pay off debt first before planning for that next vacation or buying that new pair of shoes. Think of it this way, once you are out of debt, you can go anywhere you like and you can purchase all the shoes you want.

 

3. Prepare a realizable debt repayment schedule.

 

First, you have acknowledged your debt and you know how much your outstanding balances for each are. Second, you have resolved to pay off these debts as soon and as much as you can. Third step is to make a repayment schedule that is realistic for you. One of the leading causes of not getting out of debt is consolidating debt without thinking it through thoroughly. In consolidating your debt, short term debts of two - four years are stretched to 20 - 30 years which would be more expensive in the long run.

 

4. Stop using those credit cards. Make no more new debt.

 

Individuals believe that in consolidating their loans into one account, life would become better and they continue to do the things that put them there in the first place. One cause of this is through the irresponsible use of the credit cards. Once you have made a repayment schedule, not only do you need the discipline to follow this through, you also need the discipline of not using the credit cards any more. Call up the card company and inform them of your cancellation notice.   

 

5. Budget, budget, budget

 

Now that you are aware of your cash position each month, you need to take the time to make a monthly budget that would answer your needs. Bring all expenses down to the