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Debt consolidation can provide much needed relief from the stress associated with mounting debt. However, if you do not adjust your spending patterns, it can also leave you in worse shape than you were before.
Having gone through Steps 1 & 2 of Debt Consolidation in this series, you have learned a little about budgeting, FICO, debt management, and financial services. You may have also discovered why you had a debt problem in the first place. Dealing with the root causes of your debt is an important, ongoing process that is essential to your financial security. If you feel that you have a problem with impulse buying, gambling or any other destructive money issue - you should consider seeking help - either from a councilor or support group. Otherwise, your efforts to control debt may not be successful in the long run.
(See below for additional questions.)
When you use debt consolidation, it can have a negative effect on your FICO or credit rating score. During the setting up of your debt consolidation plan, you were applying for a new loan through several different sources, possibly closing credit accounts, and generally having an increased credit activity level. While in the long run, debt consolidation should improve your credit situation, it is important to realize that it can have some negative effects.
It will take time to rebuild your credit rating and there are several steps you can take in the short term. In the long term, you will need to build your budgeting skills; develop reasonable financial goals and plans; learn to consume less and save more; and learn more about debt management in general.
Here are some ways to keep your financial house in order:
. Commit to paying all your bills on time.
. Make a commitment to researching new purchases and to investigating lower cost options such as second hand goods. The less money you spend the more you have to pay down debt.
. Even though you are no longer using a credit card, if possible, do not cancel it.
. As you work on your credit rating - it may be necessary to use some credit to build your credit rating back up - but do this very carefully, be very certain of exactly why you are charging an item, and be sure to pay it off promptly.
. Check your FICO score and review your credit report regularly to ensure it is accurate and does not contain errors.
. Start Saving. Take steps to ensure you do not get into financial hot water again. Start a regular savings program and keep with it.
Credit may be an essential part of our modern lives, but bad debt is not. |
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