Ways to Help You Deal With Debt

Many US households have consumer debt (excluding the mortgage debt) today with economy still trying to rebound. Because consumer debt is still on the rise, it is important for everyone to take full control over their debt. How can we do this? The experts in debt topics highly recommend what is called debt consolidation.

Debt consolidation is a mean to combine all your loans into just a single loan. Many people can get a lower interest rate on their total loan when they consolidate all their debt and can eliminate any late fees since one loan is much simpler compared to juggling multiple loans. Examples of these loans include home equity line of credits, credit card loans, car loans, mortgage loans and any personal loans. If this process is executed accurately, your debt consolidation provides you with a lower interest rate causing lower monthly payment. When your payment decreases, then it will surely increase your income per month. This means, you can pay-off your loan even quicker with extra payments.

Unfortunately, debt consolidation alone cannot help you dig out of your debt completely. One must also change your behavior. Why is changing your behavior so important? Most people who put themselves into this situation where they need debt consolidation are not financial savvy and have not done a good job of managing their money. Also, these people like to spend money, racking up even more debt. This is why one must change behavior along with going through debt consolidation. It’s a simple concept to not spend money if you did not earn it, but this is so very difficult.

Fortunately, there are ways to help you change your behavior. The easiest way is to get rid of your credit cards. People take advantage of credit cards because it is so easy to spend money without even earning. If you can change your behavior of not using your credit cards, then you are moving in the right direction. Another way is for you to stop opening new loans after the debt consolidation. The purpose of debt consolidation is to take your debt under control but if you start opening new loans after debt consolidation, then it would be defeating the purpose. New loans include any of the following: home equity line of credits, credit card loans, car loans, mortgage loans or any personal loans.

Having a debt can be good because it allows you to buy items without having the money ready at the time of purchase such as cars and homes. However, it becomes a problem when you start abusing the loan. Financial Advisor recommend your total debt should not be more than 35% of your total income.

For example, if you are bringing home $60,000 a year, then your monthly income is $5000. This means your total monthly debt should not be greater than $1750 and this amount includes your monthly mortgage payment and monthly car payment.

You can use this guideline as a mean to verify yourself how you are doing in terms of debt. Don’t forget that debt consolidation alone cannot resolve your financial problems. You must also start creating a good spending habits. Feel free to email me or leave me a comment if you have any questions regarding debt consolidation.

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