Will Debt Consolidation Hurt or Help You?

Debt consolidation has helped many people manage their money and get out of debt. These people were generally ready to give up their excessive credit card use and decided to stop taking out loans. Debt consolidation can hurt people, however, if they are unable to give up their debt habits. Consolidation loans often free up disposable income, which some people think of as a license to go spend. Find out if you are ready to take out a debt consolidation loan and achieve debt freedom.

Do You Have a Budget?

Some people take out consolidation loans without really changing their spending habits. If there is money available in the bank, they spend it, without keeping track of what they have spent, or saving for bills that they need to pay later on. This can get people into hot financial water, as they go out and get credit to help them get through the rough periods. In the end, not only do they have credit cards again, but they also have a large debt consolidation loan that needs to be paid off. Put together a budget, telling yourself how much money you have available to spend on which categories every month, and make sure that you spend your money wisely after debt consolidation.

Do You Have a Rainy Day Fund?

Whether you consolidate your debt or not, chances are that you will have to spend money on something you weren't expecting or planning on. You run over a nail and have to replace your tire. Your child accidentally throws a ball through your neighbor's window and you have to pay to replace it. If you don't have a rainy day fund in place, you will probably have to end up borrowing money to pay for these unexpected costs. Expect that a financial emergency is going to come someday, and set aside a little bit of money from every paycheck to pay for it. Try to have at least $1000 set aside for these little financial setbacks, and you'll be able to tackle almost any financial emergency that comes your way, without having to borrow money.

Can You Cut up the Credit Cards?

Are you willing to cut up most of your credit cards when you consolidate your debt? You may want to keep one or two around in order to rent a car and help your credit score, but you might want to stop using them. A simple way to keep an emergency card or two is to fill a plastic sandwich bag up with ice, put your cards in there, seal it, and then freeze it. If you need to rent a car, you can thaw the bag and the card will be ready for you. You can set aside some money in a rainy day fund to cover most emergencies. If you are not ready to get rid of most of your credit cards, you may discover that once you zero out the balances with a debt consolidation loan, that you start using them again and end up worse off than when you started the consolidation process.