Debt Free Living

Ok, on to the next item, Debt Consolidation.

Debt Consolidation is a simple concept and one that I have no problems with. The only problem I have with Debt Consolidaiton, other than the fact that it’s getting harder to come by, is that it too doesn’t address the underlying problem. Here is what I mean.

Debt Consolidation is nothing more than a company paying off your debts, some or maybe even all of them, and then you begin making a single monthly payment to them each month. It generally requires decent to good credit and depending on your current interest rates, you may or may not end up with a lower average APR. However, the problem is that not all debt consolidation companies make you close out the underlying credit cards or other accounts so even though you have all these credit cards or other loans that are now paid off, you may be tempted to start charging up the cards again, and many people do. You see, the underlying problem in most people’s debt is their inability to control their spending. Its the “I gotta have it now” syndrome and until you address that problem and teach people to spend more appropriately and use budgeting methods, then you are only opening up the door for more problems.

I have worked with many people over the years who used consolidation but then ended up being unable to control their spending and now they were in an even worse situation. This is very common with those that took out home equity lines of credit to pay off their debts. They started out doing the right thing by paying off their debts but then they saw something they had to have and next thing you know they were back to their old spending habits.

Debt Consolidation is a great tool and if you are capable of managing your money or truly committed to ending your debt, it’s a very viable approach to help you get out of debt much quicker. My main recommendation with it is that it be used in combination with some other program that will help you budget or spend accordingly so you don’t end up where you started, or worse.