Seven Tips for Getting Out of Debt

Debt consolidation is most effective when supplemented by other strategies. Read our seven tips for getting out of debt and put an end to your financial troubles.

1. Spend less than you earn. One of the reasons why debt consolidation works is because it helps debtors spend less than they make each month. If you outspend your income on a regular basis, you will never get out of debt. To find out if you spend more than you earn, you will need to make a budget or at least a tally of your expenses versus your income.
2. Differentiate between good and bad debt. There is such a thing as good debt, or debt that ultimately improves your financial situation instead of working against it. For instance, mortgage loans qualify as good debt because once they are paid off, you have an appreciating asset, your home, to show for it. On the other hand, unsecured debt is almost always bad debt. Unsecured debt should be the focus of your consolidation efforts.
3. Carry just one credit card. When you consolidate, you will have to cancel all of the cards you include in the consolidation except one card for emergency use. This provides the perfect opportunity to wean yourself from your cards. Make sure the card you choose to keep is the card with the lowest interest rates to help you avoid accruing more high-interest debt. For details on why debt consolidation requires you to cancel your credit cards, consult with your individual service.
4. Don't view your interest rates as permanent. The interest rates on your accounts are not non-negotiable. You may be able to talk to your creditors about obtaining better rates on your debts. You will have the best chance of getting better rates if you have paid on time and have a good credit score. You might also be able to improve your rates if you threaten your creditor with a balance transfer to another account.
5. Focus on the accounts with the highest rates. Another reason why debt consolidation is effective is because it concentrates on the debts with the highest interest rates. If you choose not to consolidate, you should adopt a similar approach. Review your accounts to determine which debt has the highest interest rate, and concentrate your repayment efforts on that account first. Once you've paid off that debt, you can progress to other accounts with lower interest rates.
6. Budget for debt payments. Verify that you have enough room in your budget for your debt consolidation payment. You should actually have more flexibility in your budget once you consolidate, so this is usually not a problem.
7. Stick with your plan. The only reason why debt consolidation might not work is if you don't stick with the program. Make your payments on time every month, and you will see your debt diminish rapidly.