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If You're Going to Consolidate Do Your Research

>> Thursday, September 04, 2008

I’ve spent the last 14 weeks talking about what we are doing to become debt free. And I’ve fielded a lot of questions. While there are many different programs and many different thoughts out there, one thing in certain- you can not pay off debts while you keep incurring new ones. Period. And since no one can really say which way the economy is going to go (but I will venture out and say we won’t see it strengthen until congress stops spending like a sieve and begins budgeting like all of us “regular” people have to) it’s just a good idea to get your money matters heading in the right direction as quickly as you can.

One big question I get is about debt consolidation. Many financial advisors advise against attempts to consolidate debt. This is because, quite often, the debt that is consolidated is not closed so additional debt is run up. Example: you transfer the balance of one credit card to another credit card with lower interest. But then you continue to use the credit card that you made the transfer from. You are adding debt, not doing anything to decrease you debt load.

There are many ways to consolidate debt: loans, credit counseling, debt settlement, and home equity loans are but a few. Of these my first choice would be to try to negotiate with your debtors. See if you can work out a payment plan, with reduced interest, and get it in writing. If that doesn’t work I would probably go for a consolidation loan next, and close the accounts you have consolidated. This way you are moving your debt and not adding to it. Credit counselors scare me as I had a bad one when I was younger who wasn’t much help and actually caused more problems with my creditors. If you go this route do a lot of research. My last option, personally, would be to add to a loan against my home. Because, if everything fails, you can usually sell your home for a profit- if you don’t have a line of credit attached.

Do your research and know all your options when you make the choice to consolidate debt.

1 comments:

green3 9:34 PM  

Don't forget the fact that if you consolidate your debt, you'll be treated as if you filed bankruptcy the next time you go to purchase a home and need a mortgage. (a 15 year mortgage of course!)

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