needing help for getting out of your own debt

Edwards Finance > Debt Help

Q. I need some advice to help us get out of credit card debt. We took out a large loan last year to do some work on our house. And we are able to pay over the minimum amount but the interest eats up most of that, and we can not put more that a few dollars in savings. Would it be a good idea to take out a bill consolidation loan?

A. _First thing is to put the credit cards away or cut them up till you get out of debt. A bill consolidation load would then be a good idea as long as the interest rate is a lot lower than the credit card's. _The only way to get out of debt is to consistently spend less than what you earn. If you are not there now, then nothing that you will do will help. Even if your debts were magically wiped out, you would just get back in debt right away. This is the big reason that I don't like debt consolidation loans. In many cases, it solves the cash flow problem today, but not the spending problem. People feel like they are out of debt, so they go on another spending binge, then end up with the same credit card debts again, plus now a consolidation loan to pay off. Even worse is the home equity consolidation. In this case, they end up in debt again, plus they stand to lose their house if they cannot make the now much higher monthly payments. Your only option is to go on a money diet. Quit spending money on anything that is not a life and death matter. Cancel the cable TV, health club, and don't buy pre-prepared food or eat out. You were naughty with your money, now this is your punishment. Put every penny you can to paying off your debt. Once you are out of debt, then you can start adding back some of the luxuries that you gave up, as long as it fits within your income. As part of your money diet, you may find that you have to reduce. For example, you may have too much car or house for your income. In this case, downsize. Rome wasn't built in a day, and neither should you expect to have several newer cars or bigger homes until after you have paid off your debts. Finally, if you go on a money diet, and you figure out that you cannot pay off your bills within 3 years, then you are bankrupt. File, get your debts discharged, and start your life over. You screwed up your first chance, but the law says that you don't have to mess up your whole life, so take the 2nd chance that we the people will grant you. And don't screw it up again. Good luck. If you want more specific advice, post your laundry list in this newsgroup, and you will get more advice that you will likely care to read. _Check out the Motley Fool "Getting out of debt" tutorial and message board. You will find great advice and ongoing discussions by many people who are just beginning or are already well on their way to resolving their debt problems. http://www.fool.com _If the value of your house has increased a a result of the loan,then you can consider the loan as a sort of business expense. The reduced amount of savings your are able to make may be compensated for by the increase value of your home which can be considered a long term assest.Give serious thought before adding more debt.

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