If you are spending too much money each month on your credit card debt and are seeking a way out, then you may find consolidation to be the ideal solution. Depending on how much money you owe and the options available to you, you may discover this is a preferable choice to bankruptcy and your current state. However, you will need to go into it with your eyes open to avoid making critical mistakes.
Before you can consolidate, you need to be sure you have your credit records in proper order. Begin by getting a free copy of your credit report from each of the three major reporting agencies. Experian, Equifax and TransUnion all provide a free annual report to anyone who requests one. This will allow you to make note of any discrepancies and to have them corrected.
Additionally, you can compare the data to your current records to be sure you have not forgotten anything. Make a list of all of your current debt that is not under dispute. List those that you are challenging on a separate piece of paper or document. If you do not win your challenge, you will be responsible for the debt so you should not discard it from your consideration until you can file the letter stating it is concluded.
You must understand that debt consolidation is not some sort of “get out of jail for free” card that eliminates your responsibility. If you are not willing to take the matter seriously, then do not proceed. You will have to change the way that you manage money if you want for your plan to be successful. Some folks make the mistake of consolidating debt only to run up the cleared accounts. Doing this can get you into some serious trouble. Avoid following that path if you want to stay clear from potential legal charges related to those actions.
When you have collected all of the paperwork related to your current debt, you need to compare it to your income. How much of your monthly income are you spending on your credit card debt each month? How much do you stand to save with consolidation? You should compare the total of your debt to the amount of money you make per year. How do they stack up?
If you will have to take more than five years to pay off your credit cards even with great personal sacrifice, you may be better off filing for bankruptcy. There are a variety of factors that can influence whether or not that is the best choice for you. However, you will find that consulting with a bankruptcy attorney prior to consolidating your debt is a good idea. The more informed you are regarding your options, the easier it will be for you to move forth.
In addition to bankruptcy attorneys, there are other professionals that you can consult with in order to get control over your debt. Counseling agencies and debt settlement companies are both there to assist people like you. However, each of these businesses operates in a different capacity. Make sure you understand the plan before agreeing to anything and remember that these businesses are there to create a profit, not as a public service. Do not allow yourself to be duped into further damaging your credit score.
You may be able to get some credit card companies to lower the rates just by asking. Although not common, neither is asking. If you have had the account for many years and always paid on time, you may qualify for a lowered rate when you request it. Doing this with an account may get you a reduced rate on the bill when compared to including it in your consolidation plans. However, you may still need to include it if that is what works out in your financial best interest for the long term.
If you have equity in your home, you may have the opportunity to use it to pay off your credit card debt. While this is a great way to get rid of a bunch of nagging monthly payments that you can barely afford, you should be extremely careful if you go this route. Those accounts that have just been paid off will be quite tempting the next time you need to buy something.
Whether you are utilizing your home equity or working out another plan for your debt, it is vital that you look at the spending habits that got you in this situation to begin with. If you are not able to control yourself with your accounts, you are likely to repeat this in the future. Make a choice and a commitment to cease this damaging cycle. If you need to get counseling or other assistance, do so.
Another option for paying off your debt is to dip into your retirement account. However, this is risky, just like using the equity in your home. While this method will get the creditors off your back, you are giving up future security. If you are going to use your retirement money to get out of debt, have a plan to replace the money by increasing your monthly deposits. Additionally, you will need to make sure you do not build those accounts back up.
You see, one of the challenges that you will encounter is that you do not want to destroy old credit accounts. The longer your accounts are open and active, the better it will reflect on your credit score. However, you want to not use them. Lock up the cards so that you will not be tempted to use them when you are out. If that is not enough, then you need to consider more about your poor relationship with money and why you are unable to make rational decisions with it. After all, your happiness is involved directly with your level of comfort. Being in massive debt is certainly not comfortable!
You may be able to get a debt consolidation loan from your bank or credit union. This method has several benefits if you do it correctly. For one, moving the debt from credit cards to loans will improve your score due to the way your score is calculated. When you have a lot of your available credit used up on your credit cards, it has a negative impact on your score. Moving it will automatically remove that penalty.
With a debt consolidation loan, you will only have the one payment each month that should be significantly lower than your current credit bills add up to. However, this is only a good idea if you follow through. When you receive the funds, instantly pay off all of the debt that is covered by it. Put those credit card accounts where you cannot access them. Do not allow yourself to use them.
If you do not follow those guidelines, you could end up in significantly worse financial shape than you are right now. Make sure you have a plan for success that includes the short, medium and long term. Financial freedom does not happen randomly to people. If you want it, you will have to work hard to make it happen. However, know that it is possible and you do have the choice to make it happen.
If you have a life insurance policy, you may also use it to pay off your credit card debt. You can only seek the cash value of the policy, so it is only of real use with older, established ones. While this can be a means of paying off your debt, if you do not pay back the money you borrowed against it, your heirs will have the funds deducted before their payout. Depending on your exact circumstances, you might even leave them in debt with taxes related to the policy. Therefore, you should make sure you have a repayment strategy in place and have exhausted all other options before going this route.
No matter what method of debt consolidation you choose, you will have to alter the way you deal with money or you will have difficulty in the future. None of the solutions are perfect and you will have to consider your personal circumstances to determine which is the best for you to use. As part of your plan, you must figure out a new relationship with money.
Consider reading informative books from financial gurus and reading blogs from those who understand how to achieve freedom from the financial grind that has so many people trapped in unfulfilling jobs just to get by each week.
If you are ready to take control of your life and get rid of your excess debt for good, look into your consolidation options and decide which is the best for you. Then you can start learning how to take care of your money now and in the future so that you can be financially comfortable for the rest of your life.
