Debt Consolidation Tips

If you are in a great deal of debt, then you know the frustration that comes with trying to climb your way out. Aside from debt being harmful to your financial and personal life, debt itself actually costs you more money in the form of interest rates. Debt can be tough on people mentally, causing undue stress and anxiety. Debt consolidation starts with budgeting and better spending practices and is completed by leveraging your assets and credit transfers to interest-free opportunities to attain a more comfortable financial situation.

Budgeting and Spending

Budgeting includes tracking your income and expenses, spacing out lump sums of money over time and looking into the future to predict what income you will need.

To start a basic budget, you can either use a pen and grid paper or spreadsheet software such as Microsoft Office Excel. Write in the months of the year in cells across the top of the page from left to right. Down the left-most column, type in your expenses such as your car payment, utilities bill and rent.

Begin tracking your income and expenses by looking at bank records (if you make purchases on your debit card) or by saving receipts for everything you purchase and adding them into your budget at the end of each day.

Using a budget will give you an objective view of your finances, with the idea that you should have extra money left at the end of each month that can be redirected toward your debt.

Leveraging Your Assets and Credit Transfers

Using your home to take out a debt-consolidation loan is one way to consolidate your debt. Discuss this with a bank loan officer. A list of things you need before talking to a loan officer include: three months of pay stubs, tax returns from the previous two years, proof of homeowners insurance, bank information such as your monthly bank balance and checking account number and other information about your home such as the square footage.

Your loan officer can help you simultaneously refinance your home and add all or some of your credit card debt into the new home loan. This effort can lower your monthly payments and help you pay less interest overall.

Credit transfers can be helpful if you are aware of some pitfalls in doing this. A credit transfer is the moving of debt from high-interest credit cards to low-interest or zero percent interest credit cards. To transfer a credit balance, simply talk to your personal bank or apply online to one of many available credit card companies such as Chase, Discover Card or Citibank. View the details of the credit offers and make sure you can transfer credit card balances interest-free for at least the first six months and without a transfer fee. If your application is approved, you will be able to transfer your credit balances and lower your overall monthly payment.

There is a warning associated with credit transfers. While a zero percent offer seems wonderful, you have to make all of your minimum payments on time or your new credit card company reserves the right to increase your interest rate, and you could find yourself right back where you started, or worse.