Debt Consolidation Blog

Getting debt under control is very simple in theory but difficult in practice. The basics are easy–you have to spend less than you make in order to reduce your debt. The hard part is that this requires a lot of discipline and often requires you cut back on unnecessary spending. For many people learning what is necessary and what is unnecessary is very difficult.

If you are truly serious about reducing your debt, you need to be prepared to make short term sacrifices for long term benefits. In mild cases this may mean driving a used car for an extra year or going without cable television. For more extreme cases it might mean moving to housing that is more affordable or even to a different area of the country where your living expenses would be lower.

Debt consolidation loans are one thing you can do to get out of debt. Taking out a single loan to pay off a bunch of small loans can drastically reduce your monthly payments and may save you a tremendous amount on interest. However, unless you make lifestyle changes to help you stay out of debt, a debt consolidation loan may just help you go deeper in debt than before. Also if you aren’t careful, debt conslidation loans actually keep you in debt longer by spreading purchases over 20 or 30 years.

If you are trying to get out of debt, first adjust your lifestyle and then use debt consolidation to help you pay off your debt faster. If you get a consolidation loan first you may end up in more financial difficulty than before.

One of the reasons people get into financial problems is because they don’t understand how items depreciate. Most items are worth less over time. For example, if you bought a car in 2001, it is probably worth less than what you originally paid for it. This is depreciation. The value of your property depreciates over time. That computer you spent $1000 on in 1999 is probably worth about $10 today.

People get in trouble with debt when they borrow money for items that depreciate rapidly. For example if you buy a stereo today for $1000 using credit, once the stereo is no longer new it is worth less than what you owe. You couldn’t take the stereo out and sell it for the amount you owe on it. If an individual buys many things like this it is easy for their networth to become negative very quickly.

On the other hand, certian types of items retain their value. For example, if you bought a house 5 years ago, it is probably worth more today that what you paid for it. If you have a traditional mortgage, you now owe less on the house that what you could sell it for.

In general if you have to take out a loan, you should only use borrowed money for items that don’t lose their value. It is better to borrow money for your house than for your automobile because the house will retain its value much longer than the automobile.