If you want my advice about debt consolidation..........
There is no doubt that debt consolidation gives you breathing space. Having all your debt packaged into one loan, and spread over a longer period of time, reduces your regular payments and frees up your cash. You breathe a sigh of relief and vow you'll never get into the same situation again.
But the availability of easy credit, and the constant bombardment of advertising overwhelms your sensible financial brain, and before you know it, you’re back where you were before.
This has already happened to one friend of mine, and another is on the way to creating the same scenario. I mentioned this situation briefly in a recent forum post, but I’d like to expand on it here, to alert you to the number one reason that causes debt consolidation to fail.
Don’t get me wrong. Debt consolidation can work if you combine it with one essential element – a change in habit.
Sounds easy, doesn’t it? What habit, anyway? Oh, of course – my habit of buying things I don’t need with money I don’t have. Sure – easy – no problem.
Well, if it’s so easy, why is one friend now paying off a mortgage that is larger than the current market value of her home? And why is another friend on a spending spree using the credit she freed up with debt consolidation?
They haven’t changed their habit of spending more than they earn. They haven’t coupled the debt consolidation exercise with some behaviour modification strategies to help them understand the emotional triggers that cause them to overspend.
Because I care about them, I have offered them the following advice:
§ Put a long-term financial plan into place. If you don’t feel you have the skills to do it yourself, get a professional. Some banks and other financial institutions will offer this service free if you have accounts with them.
§ Do a monthly budget and stick to it.
§ Reduce luxury items from weekly indulgences to infrequent treats (after all, you still need to have some fun!).
§ Set some goals for holidays, outings and special purposes, and find inventive ways to fund them that don’t involve filling out a credit application form.
§ Use affirmations and visualization techniques to re-program your subconscious mind. There are many self-help books on the market that will walk you through this process, but again, if you don’t think you can go it alone, see a professional. This will cost money initially, but can bring whole-of-life changes if you practice the techniques.
They don’t have to be misers to be financially independent. But they do have to change their mindset, or their willpower will become won’tpower when that item they absolutely must have appears on the radar.
And that applies to you, too! If debt consolidation is a viable way out for you, then do it. But do these other things too – life is much more enjoyable when you are not constantly worrying about debt.
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