When Should You Use Debt Consolidation?

If you have a heap of debt keeping you awake at night, it is in your best interest to find relief as quickly as possible. Financial problems are overwhelming millions of people today and are leading to separation and divorce of families and a lot of health problems due to overwhelming stress.

If you find yourself overwhelmed by debt but don't want any of those outcomes, it is time to weigh all of your options for debt relief.

Debt Consolidation - The First Step

If you have not done so already, the first step in managing debt is to take an honest look at what you are really dealing with. This means taking inventory of the exact amount of income you have coming in and then honestly taking inventory of all expenses going out.

This is often a difficult process, especially if you have recently taken a pay cut. Do not be surprised to find that you are spending far more money than you actually have coming in or if your total debt is larger than you realized.

Debt Consolidation - Sacrificing for Your Future

The next step is to start making cuts to your expenditure wherever possible. This may include reducing the amount of money spent on shopping and entertainment, eating at home on a budget rather than eating out, and finding cheaper rates for insurance policies.

That may be enough to get on top of your bills somewhat and make things more comfortable, but if you have skyrocketing interest rates on credit cards and other debts you may still struggle to get out of debt.

Debt Consolidation vs. Bankruptcy

When simply cutting back on expenses does not help, the choice often comes down to debt consolidation or bankruptcy. You should always see a debt counsellor before even considering bankruptcy, since a consolidation is much less harmful to your credit score than a bankruptcy.

If you see a non-profit debt counsellor first you are losing nothing even if you do opt for bankruptcy later on.

A debt counsellor will work with your lenders to significantly reduce the interest rates and/or amount owed so that the problem is easier to handle.

You may then be able to make the payments under these new agreements, or you may move forward and apply for a consolidation loan that will combine all of those debts into a single debt.

Debt consolidation does not free you from debt like a bankruptcy, but it allows you to make more reasonable payments to get yourself out of the debt eventually. It doesn't hit your credit score as hard and cripple you in the future like a bankruptcy, either.

Debt Consoliation - Final Step

Once you have gone through the necessary steps with your debt counsellor and new agreements have been arranged with most or all of your lenders, it is time to make the final decision.

If you think you can make the payments with the new agreements struck with your lenders, then you may want to establish a very tight budget with the income you are now well aware of and try to make it out of debt on your own.

If on the other hand you still find the payments difficult to make and you feel it is very unlikely you will ever pay off the debts at the new interest rates, you may be a prime candidate to apply for a debt consolidation loan.

How Much Debt is Too Much?

Consolidate Debt: While some people would like for there to be a magic number for the answer, the truth is that there isn't. The amount of money that is too much for one person or one household is not always going to be too much for another person. There is just not a straight answer that goes across the board.

Read Further...