Can Debt Consolidation Work For You?
What are the concerns and choices?
Here are some self-tests on whether or not debt consolidation is worth considering:
(a) is your existing debt an every day worry?
(b) is 60% or more of that wory over how to pay off credit card debt?
(c) is the current interest rate on your credit card debt more than the interest rate on your car loan or mortgage parts of your debt?
(d) is your credit score good enough that a lender loan would probably be at a more favorable rate?
(e) have you gone to a professional for debt counseling recently?
(f) have you considered bankruptcy as a possible solution?
Where you go from here....
Certified Financial Planners (CFP) are not just trained to work with the super rich. Their expertise is available and valuable for you, too, but at a price. Certified Public Accountants (CPA) work daily with clients many of whom have faced your own problems, and they can tap their training and experience to given sound advice, too.
There are other private and public counseling services which offer debt counseling, and there is professional help available from your local banks and credit unions some of which have their own available CFP staffers.
If you have tapped one or more of those sources already, it is still a good idea to be sure you feel comfortable with the advice you have already received. If not, get some more suggestions until there is an approach you feel convinced wil work for you.
Every day worries....
Any constant worry is debilitating. Until the worry is dealt with it will affect your work, your family, your sleep, and your health. It is important that you find a workable solution that minimizes the worry. It is more than likely that there is a workable solution for any debt problem. You haven't created a problem that nobody else has ever had to deal with. As unique as your individual circumstances surely are, there is a greater chance that the basic solution already exists which can put things back on track and bring greater peace of mind.
Preparing to be helped....
Too often the problem is not clearly understood. To get good advice requires starting with the facts. Before you set out to find your solution, sit down and gather your facts. These should include:
1. How much debt do you owe and to whom?
2. What are your normal monthly expenditures right now (i.e. where does your income get spent)?
3. What are your available resources (e.g. current income, savings, assets, etc.)?
4. What is the current interest rate on each of you debts?
5. If you don't make any changes, when can you pay off your debts?
6. What is your current credit rating? This information can be obtained free annually.
7. If you could pay off some or all of your current debt by consolidating and paying less interest on a consolidation loan, could it be a good idea to do so now?
8. If the answer to Question 7 was positive, where can you get the best interest rate for such a consolidation loan, and what could you use for collateral, if collateral is required?
Before consolidating my debts, is there anything else I can do?
Sometimes we can feel like we are "all alone" when we really aren't. Let's take a quick look at other alternatives.
Can a member of your extended family possibly help?
Can you give yourself a loan by tapping cash values on an insurance policy or by dipping into retirement funds which you can replace later when the current debts are paid?
Will one or more of your creditors reduce your interest rate, if you request they consider doing so?
Can you create more income by seeking a better paying position, by taking on an additional part time job, by using a skill you currently have, or by getting some added training?
Are there "normal" expenditures you can reduce or eliminate so those funds can be applied to your debts?
Are others who rely on your income aware of your need to reduce expenses to pay off your debts?
Sometimes pride is interfering with finding our own solutions. You may not want to admit that you have mismanaged your finances by taking on more debt than you could handle. You may think "I got myself into this mess. I have to get myself out of it on my own." You may not want to admit to your spouse, or your family, that things are not as positive as you wish they were. You may think that getting expert help will just add to your debts without solving them.
What about bankruptcy?
Bankruptcy is certainly one solution when there is no other solution. That's why the law allows bankruptcy. It is not the best solution, unless it is the last solution, meaning that you have expert advice that recommends it. That expert advice should clearly explain what a bankruptcy will mean for your future, so that both the positives and the negatives have been fully understood. The laws governing bankruptcy have changed over the years, and may vary somehwat depending on where you live and other specifics of your financial situation, so getting expert advice is a good investment.
While a bankruptcy might give immediate relief, there is a continuing danger. The debts the bankruptcy eliminates may have been from a catastrophic accident, illness, or something entirely beyond your control. Such things happen, and could happen again when your bankruptcy shield has been used and is gone. More often, however, debts that lead to bankruptcy are those debts we ourselves create. That means that, if we don't fundamentally change what we did to go into debt in the first place, we will soon be in debt again and the pattern will repeat.
Having to deal with debts is a learning experience. Yes, it would be better if we learned from the experiences of others, instead of having to learn the hard way. The important thing is to learn to manage debt wisely, and if we ever find ourselves swamped in debt, get the help we need before the alligators arrive.
Finding a debt solution is easier the sooner we look for one, while the pressures are still at a minimum. Debt consolidation is one possible solution, and is often a very good one when exchanging one or more debts at a high interest for just one at a lower interest is still workable. But there are other solutions which might be better and more satisfying in the long run.
If you can benefit from some help, don't be too proud to ask for it. It is a wise man who knows his own limitations. It is an even wiser man who is not too prideful to ask for good, professional counsel.
(c) 2011 Demas W. Jasper All rights reserved.
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