One of my biggest financial challenges has been learning to live with credit cards while battling a lifelong shopping problem. It is how I got started thinking seriously about money and something that I have written thousands of words about at this point in my career. So why am I writing about debt (yet) again? Because people are still struggling with the same things I struggled with, and there are constantly new practices and techniques that can help. One such strategy is debt consolidation.
And I know what you’re thinking, debt consolidation is for people:
- in dire straits
- who have lost everything
- or are being harassed by creditors at every hour of the day.
But it isn’t. It is increasingly a more popular option for those struggling to keep up with student loan payments, their mortgage, or medical debt. And no one talks about it because of the perceived amount of shame involved.
What Can Debt Consolidation Do for Me?
Before beginning any kind of consolidation, talk to a debt counselor or financial advisor to make sure it's a good fit for your credit needs. Sometimes debt consolidation works where you take out a loan at a different interest rate with a separate company, and you use those funds to pay off your other creditors.
Upstart is one such company I like where you can do this. If you've got less than $10k in balances, researching other balance transfer offers with cards can be a great way to lower interest rates without getting a heavy (like a debt management company or service involved.)
Other times, you'll use a debt management company where they negotiate terms with your creditors on your behalf to get lower payments or a lower interest rate, and then you'll make one monthly payment to the consolidation service for typically a lower rate and with reduced fees, but for a longer period of time.
And while debt consolidation isn’t for everyone, it may be for you. If you’re concerned about your debt, learning about what options are available can help you get a new start financially.
So, Now What?
Well, even you’ve paid off your cards/student loans/etc. on paper you still have some work to do.
Most consolidation services will require you to close the accounts you are paying off and avoid opening any more. This is to keep you from getting into further debt while repaying your consolidation. Seems easy enough, right?
With this comes the lifestyle changes of not utilizing credit – it is imperative to live within your means as you pay back your loan. Since you’re taking new financial steps, this is also a good time to start making progress on other goals such as saving more.
Since you’re only worrying about a fixed payment each month, hopefully that takes some of the financial stress off of bill time. It never hurts to pay extra. In addition to your fixed payment you should try to use any “found” money (money you weren’t expecting, such as a bonus at work) to continue to make the maximum payments you can afford. It doesn’t hurt to finish early and strong!
Hear from someone who used a debt consolidation service
Full disclosure: I've never used a debt management company, although I have used a consolidation loan to pay off higher interest balances in the past. It's a great way to save money on interest if you have a solid financial history and good credit.
But I wanted to hear about the benefit these companies can provide to those who are drowning in debt. My very brave friend, Robin, paid off $30,000 dollars of debt through a debt consolidation program.
In the video below she talks about how to pay off credit card debt, and her story is amazing!
There are a few bloggers out there who have paid off debt through this approach, but hearing a first hand account really helped me understand the benefits to programs like these.
You should watch the video for Robin's take and tips if debt consolidation is something you are considering. She's also a great role model for stories like these, as she now lives a debt free lifestyle!