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Debt Consolidation: An Assessment of Your Debt Picture
Debt consolidation needs no definition. The name says it all. Debt consolidation simply means bundling together all debts, then taking out one loan to pay them off. This new loan should offer a lower interest rate and the convenience of a single payment.
Debt consolidation sounds good when you can’t pay your monthly bills, debt collectors are assaulting your phone, and you worry about losing your car or your home.
But don’t be lulled into thinking of debt consolidation as a quick fix for financial woes. It is not. Despite the flood of promises that come daily by mail, TV, radio, the Internet, and newspaper ads, getting out of debt is not easy. Think of it this way: it is more like going on a diet. You didn’t gain the weight overnight, so you won’t lose it-and keep it off-overnight, either. The same is true of debt.
Any offer to get you out of debt should be approached with caution-and careful attention to the fine print-no matter how good it sounds. And beware, too, that debt consolidation only treats symptoms-those accumulating monthly payments that cause such trouble– but does nothing about the cause of debt, which, basically, is spending more than you can afford to pay.
People get into debt for any number of reasons, maybe a lost job, mortgage payments that balloon, unexpected medical bills, or simply buying things they don’t need because credit is so easy, especially with a pocketful of credit cards. But the overall problem is the same: You owe more than you can pay.
Debt consolidation is one solution, but there are others, starting with credit counseling and ending with bankruptcy as a last resort.
The first step needs to be a sharp, and critical, look at your finances. You need to know how much money you have to spend, where and how you spend it.
The second step is a look at what you owe, also known as your liabilities. This means the entire picture, not just the obvious housing, transportation and food expenses, but clothing, medical and dental, education, gifts, utilities, taxes, entertainment, vacations, any and all other expenses, (including the daily lattes) as well.
Some is good debt (mortgages, college, some car loans) often looked at as investments for the future, some bad (over-loaded credit cards), and some the kind that can’t be avoided (taxes, utilities), but it adds up. Debt figures and statistics are usually out of date, sometimes inaccurate, and often misleading. But the important figure is not what other people owe or even what the “average” American owes. It is what you owe, and, even more important, what you can do to cut it back.
Consulting a financial advisor or credit counselor can help. This step also comes with cautions, so choose wisely, don’t listen to or believe the ads, and be wary of anyone who asks for money up front. Be sure to check first with the Better Business Bureau, your state attorney’s general office for consumer affairs, or some other reliable source to be sure you are not going to add to your debt problems.
And always bear in mind the time-honored words of wisdom: “If it sounds too good to be true, it probably is.”
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