What Debt Consolidation is all About

Once you're out on your own and actually in charge of your own finances, you'll come to realize that it doesn't take much for unrestrained spending and the debt that invariably follows closely behind it to get out of hand. For many people, those first few brand new credit cards comprise the main ingredients of a recipe for disaster. As soon as that first-time card owner gets out and about with his or her new 'plastic,' they'll typically regard it as cash and use up their credit limit in fairly short order.

Let's face it; most of us have been there before. It's really not that difficult to do. Even if you don't buy large items, those numerous small charges – one after another – can stack up and create a hefty bill at the end of the month. Even worse, if you have a number of cards and use them all at once, you could really be looking at an ugly state of affairs. All of a sudden, the realization hits. You're in debt, deep debt. Those bills look overwhelming and you don't know how to handle them.

Unfortunately, when they find themselves in this debt situation many people start to juggle their bills. This month they'll pay one or two, and wait until their next check to pay the others. But, those late payments will mean an additional late fee that's tacked on, extra interest and even more trouble down the road. Chances are they'll try this approach for a number of consecutive months before they come to the conclusion that it's not working and they need a different plan to get rid of that mounting debt. Now, however, they not only have the debt, but also a damaged credit report to go along with it.

Before things get completely out of control, you find yourself thinking about a debt consolidation loan. But, if you choose to go this route, it's vitally important that you get a debt consolidation loan before you start missing payments on those monthly bills. The worse your credit gets throughout this ordeal, the higher the interest rates you'll have to pay on that debt consolidation loan when you do get it. Remember, lower interest rates are reserved for those with better credit.

A debt consolidation loan should be procured for an amount that will allow you to pay off all of your bills at once, leaving you with only one monthly loan payment to deal with. Since loans are typically made at lower interest rates than credit cards, you should be able to accomplish more with your money than you would have been able to had you kept your debt in its original forms. But, instead of spending that extra monthly cash that you now have on hand, you should consider putting more toward the debt consolidation loan to pay it off quicker, as well as putting some aside so that you'll have a little bit of cash saved up for that proverbial 'rainy day.'

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