Making a Debt Consolidation Loan Work
Debt consolidation loans are not necessarily a bad idea. When used wisely, a debt consolidation loan can pay off all your high interest debt and significantly lower your monthly cash outflow. There's just one problem. Without education on the wise use of credit, obtaining a debt consolidation loan is like putting a small band-aid on a huge wound. In the long run, it won't do you any good. In fact, many people who consolidate their debts will rush right out and charge up their credit cards all over again. That leaves them with a hefty loan payment plus credit card bills. And that combination often leads to bankruptcy.
To avoid this dangerous cycle, you need to follow the Three Rules of Debt Consolidation Success.
- Rule 1: Learn how to manage your money wisely
If overspending is what got you into debt, then chances are you've been living beyond your means. To overcome this obstacle, you must learn to treat money in a whole new way. The CCCS School of Financial Freedom can help with plenty of informative classes on money management, budgeting and more.Another way to learn financial responsibility is to sign up for the CCCS Debt Management Plan. Our professional credit counselors can give you an assessment of your present financial situation and set up a debt repayment plan that you can afford. If you can stick to this plan and reduce your overall spending for at least three months, then you may be ready to handle the responsibility of a debt consolidation loan.
- Rule 2: Close other credit accounts
The best way to insure that you do not rack up a lot of new debt is to close the majority of your existing credit accounts and keep them closed. You should not open any new accounts, either. This will force you to live within your means.Now you may be asking yourself, what if there is an emergency and I need some extra cash? The best answer is not to rely on credit to solve your problems. Instead, open a savings account that is just for emergencies. Then, put money away every month and save it for that rainy day.
Of course, there are some situations where having a credit card is necessary -- renting a car or making hotel reservations are good examples. For this reason, you may want to keep a credit card account open. Try to use the cards only for emergencies and don't charge more on them than you can pay off at the end of every month. Follow this advice and you'll avoid the debt trap
- Rule 3: Pay on time every time
This is true for any credit line but especially for a debt consolidation loan. The reason being that if you default on this type of loan, you'll lose a lot more than your good credit. You could lose your house, car, or other personal property.
