Reasons To Consolidate

Almost everyone is a "beginner" in the process of bill consolidation, because most people only do it once. If successful, there is no need for a second time; if not successful, a bankruptcy is usually the result.

Identifying and Recognizing the Need

Though tough to do, you first have to recognize that your bills are out of control. The warning signs are clear enough, but you have to get out of the "denial" stage. Identifying signs are as follows:

A dread of facing the bill-paying time. This is the result of your worry about having enough to pay everything and still have funds left over to last until next payday.
Living from payday to payday and falling short a day or two before payday.
Consistent lack of money to pay cash for the things you need.
No savings and no surplus money to put into savings.
Use of credit to purchase any item that is really a basic necessity, such as food, utility bills, taxes.
Worry and stress about money - you are spending a great deal of time thinking about your bills and how you will pay them.
Late payments and fees because bills haven't been paid on time.
Maximum credit limits reached on the majority of your credit cards.
Ability only to make minimum payments for 6-7 months in a row.

Put It Down in Writing

A surprisingly large number of people do not have a listing of all of their bills in writing. Part of this is the "denial" game, and part is a result of lack of training. Every regular monthly bill must be listed and the amount to be paid, even if it is only the minimum. The total will give an accurate picture of total debt. The debt should then be divided into that for which debt consolidation is not an option (utilities, telephone, house payment, groceries, etc.) and that for which debt consolidation is appropriate.

All debt that is credit card or revolving related should contain total balance, minimum payment and interest rate charge. This allows you to present a true picture to a potential consolidator. Add up all of the interest rates and divide that total by the number of debts you actually have. This will give you the average interest rate you are paying. Now, you know what type of interest rate on a consolidation loan will really be lower than the rate you are currently paying.

Do Your Research

Explore potential consolidation companies. The best explorations begin with anyone you know who has been through this process and local companies which may have local references that can be verified. Both profit and nonprofit organizations often advertise on local television and radio programs, as do lawyers who specialize in consolidation and bankruptcy. The Internet is obviously another logical exploration vehicle, but there will be literally hundreds of companies available. Weeding through them can be a laborious and time-consuming task, but it must be done in order to find the best deal.

Beware of any consolidator who demands an upfront fee in return for the promise of a guaranteed loan. In some states, this is illegal, and, even if not, no one can guarantee a loan until all of the facts of the situation are presented.

Be completely honest about your situation - no need for embarrassment. They have heard worse and will not be judgmental. You need to give the complete picture of your debt, specifying each loan or credit card with total balance owed and interest rate.

Do Not Be Hasty

Don't select the first consolidator you talk with. Fees and charges vary widely, and you want the best deal possible. Have a list of questions to ask, as follows:

What is the process, step by step?
What are your fees and how are you paid these fees?
What will this do to my credit score?
How long have you been in this business and do you have references?
Are you a member of any state or national debt counseling/management/consolidation organizations?
How much can you save me on my debt?
What is your estimate of the interest rate I can get on a consolidation loan?
What follow-up help do you provide to keep me from getting into this situation again?

Select Your Consolidator

Once you have made your selection, let him do the work, but quickly and promptly provide any information requested. When the final loan terms are reached, read all of the fine print. Remember, you haven't committed to this until the paperwork is signed and, even then, you have three days to change your mind in most states.

Take Your Post-Loan Steps

Cut up your credit cards, except, perhaps, for one. Most consolidators will recommend you keep one card, with the lowest balance and/or interest rate, in case of emergencies. Vow NEVER to use it unless you have a true emergency (new clothes, eating out, electronic equipment and games are NOT emergencies!).
Make every payment on time, no exceptions. The only way to rebuild from the hit your credit score will take is to prove yourself responsible.
Make no major purchases until this loan is paid off, no matter how attractive they may appear at the time.
Make a budget and stick to it religiously. Be certain to build in a small amount for miscellaneous expenses, and, if possible, for savings. If there is extra, use it on the loan.

Debt consolidation can be frightening and embarrassing. If these emotions are preventing you from exploring the possibilities, think of the alternatives - bankruptcy, years of debt and interest payments, stress, unhappiness, and the hopelessness of seeing no end to your financial woes.

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