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Is it a good idea to consolidate bills?

Bill consolidation is often seen as a "savior" to people swimming in debt and cannot meet monthly obligations. The thought of combining all debt into one large loan, at a lower payment, and often lower interest rate, is appealing, convenient, and a sound solution.

If you choose this method of relief, there are some stark realities to be faced. It is no longer time to play the ostrich with your head in the sand, but to sit up, recognize both sides of this path, and take steps to minimize the possible pitfalls.

Identify!!!!

First and foremost, identify what behaviors got you into this situation. Being in "over your head" does not make you a bad person - it happens to huge numbers of people every year. Those behaviors have to stop. For example, if you are an emotional or "binge" spender, you have to devise a definite plan for changing this behavior. Cutting up credit cards is normally the best practice, although you should retain one for "emergencies only".

Emergencies Only Please!

Make a list of what constitute emergencies. If the item or service is not on the list, you do not use your credit card. Examples of emergencies are car repairs or parts, medical bills and prescriptions, and critical home repairs. Christmas shopping is NOT an emergency, and don't even think about using your card at bars and restaurants, not to mention gambling casinos.

Watch For Scammers

There are unscrupulous people in all professions, and bill consolidation is no exception. You must investigate and question before signing any contract. Be sure you know the exact process, the fees, and the success rate of any consolidator you are considering. Will the consolidator try to negotiate your balances down before getting a loan for you, and what will the interest rate and payments be? For how long will you be making the monthly payment and how much of it is being kept by the consolidator? Reasonable fees and charges are to be expected - compare, compare, compare! Check the local better Business Bureau and the State Attorney General's Office for any complaints, and ask for references.

Your Credit Will Be Affected

Do not let any potential consolidator tell you that your credit will not be affected by a consolidation procedure and loan. If a lower balance has been negotiated, for example, understand that your credit report will show the debt paid but not "as agreed." In other words, you did not live up to the terms of the original agreement with the creditor. As well, if any payments to creditors are late following a consolidation program, it is your credit that will suffer greatly. The bottom line is this - your score will drop, and it may take a while for you to achieve a level allowing you to make a major credit purchase again. Before you consolidate debt, be certain that you can live with your home and your car during the credit rebuilding process.

Bill consolidation is certainly preferable to bankruptcy and should always be considered first. The key factors in its success, however, are the debtor's willingness to change his/her spending habits and to live pretty sparsely until the consolidation payments are completed.

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