Debt Consolidation Overview

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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Debt consolidation simply means bundling together all of your debts, then taking out one loan to pay them off. This new loan should offer a lower interest rate and the convenience of a single payment. You should consider debt consolidation if you can’t pay your monthly bills, if you’re worried about losing your car or your home, or if you are being harassed by debt collectors.

Using Caution with Debt Solutions

However, debt consolidation shouldn’t be viewed as a quick fix for financial problems. Despite the flood of radio, TV and mail advertisements promising otherwise, getting out of debt is not easy. Think of it this way: it’s like going on a diet, you didn’t gain the weight overnight, so you won’t lose it—and keep it off—overnight, either; the same is true of debt.

Any debt solution offer should be approached with caution—and careful attention to the fine print—no matter how good it may sound. In addition, it should be noted that debt consolidation only treats symptoms of debt, such as high monthly payments, but does nothing about the cause of your debt. People get into debt for any number of reasons: a lost job, mortgage payments that balloon, unexpected medical bills, or simply buying things they don’t need because credit is so easy to obtain. But the core issue remains the same–that you owe more than you can aford to pay.

Debt consolidation is one solution, but there are others, starting with credit counseling and ending with bankruptcy as a last resort.

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Taking a Closer Look at Your Finances

The first step to getting your debt under control should be a sharp, critical, look at your spending. You need to know how much money you have to spend, and where and how you spend it.

The second step is a look at what you owe, also known as your liabilities. This means the entire picture, not just the obvious housing, transportation and food expenses, but clothing, medical and dental, education, gifts, utilities, taxes, entertainment, vacations, any and all other expenses down to the smallest purchases. You need to assess how the two figures–your spending and what you owe–come together, and decide what changes can be made and if debt consolidation is a good option for you.

Not All Debt Is Bad

Remember though, not all debt is bad. While over-loaded credit cards with high interest rates are certainly bad, others such as mortgages, college expenses, and some car loans are often looked at as investments for the future. Of course some debts, like ones associated with taxes or utilities, can’t be avoided–but still add up. Debt figures and statistics of average debt are usually out of date, sometimes inaccurate, and often misleading. It’s best to ignore these figures and focus on the issue that matters to you: what you owe, and how debt consolidation can help you get some debt relief.

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