When charge cards become a way of life, it's time to make some serious changes. Before you jump to debt consolidation as a solution, make sure that you're 100 percent committed to living without the plastic.
Debt can often feel like a wound that never heals. Putting a bandage on it may help in the short term; but if you don't handle the underlying cause of the puncture, the bleeding will begin again. End these wounds once and for all by taking action to get out of debt. Then, take the psychological steps necessary to make sure it doesn't happen again.
Most of the time, overspending is the underlying cause of excessive debt. Maybe you had a legitimate reason for spending more than you make, and maybe you didn't. What matters now is what happens from this point on. If you're considering debt consolidation as a way to finally heal the wounds, there are some things you should know first.
A properly structured debt consolidation loan reduces your monthly payment burden and sets a fixed payoff schedule. In some situations, a consolidation loan may end up costing more in total interest, and it may even extend the payoff cycle. But for many debtors, these are secondary concerns. The bigger issue is structuring the debt so that it can be paid off without sleepless nights, and without phone calls from collectors.
Why debt consolidation fails
Debt consolidation will almost certainly backfire if you're unwilling to change your spending habits. Just think about what happened the last time one of your credit limits was increased-how long did it take for you to spend up to the new limit? After consolidation, you'll be armed with a supply of freshly paid off credit cards. If you can't keep from spending, it won't take long for the debt balance to spin wildly out of control again.
Any debt reduction strategy requires a serious lifestyle change. If you want consolidation to work, you have to be willing to give up some things. For example, are you willing to:
- Cut up your credit cards?
- Stop eating out?
- Stay home when your friends are all going out?
- Pay cash for everything?
- Stick to a spending budget?
As a test, make a detailed list of what you spend in one month. Identify everything that you bought that you didn't need, and add up the total cost. Then, ask a friend to review the list. Identify the non-essential purchases, and add up the cost. Compare your answers. If the two numbers are vastly different, you have a lot of work to do. Simply put, you can't control your spending if everything you buy is a "must-have."
When the debt level gets high enough, you'll realize that the upgraded cable subscription, satellite radio service, and daily chai lattes aren't really that important. Only then will the healing process begin.
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