Consolidation of debt is an option that is available to most people, especially if they have not yet ventured into a bad credit rating situation. If one is looking at the option of consolidation of debt, then it should be done prior to any adverse conditions or comments on your credit report.

Consolidation of debt can prove to be a solution, but it can be dangerous too. The reasoning behind this rationale of consolidation of debt is if one is not disciplined enough to refrain from incurring further debt after you have performed a consolidation of debt exercise, you can end up in twice as much trouble as you were in the beginning.

The process of consolidation of debt involves the settlement of all debts except one major account, this account normally takes the form of a bank loan, and can be secured or unsecured; meaning that you may have to provide collateral in the form of surety or fixed property, when applying for a secured loan. The security offers the creditor a safety net of being able to recover the outstanding debt should you default on the loan taken out.

The consolidation of debt works particularly well when you have identified that you may well be battling to keep up with payments of all your current debts, in which instance once you have taken the loan and performed the consolidation of debt, you will have one single debt payment to be made. This is usually lower than the sum of all previous debt payments, it is recommended to attempt to pay more into the consolidation of debt loan, in order to reduce it as soon as possible.

As mentioned earlier, after consolidation of debt it is very tempting and extremely easy to fall into the trap of spending on those accounts and credit cards that you already paid off; by all means you should steer away from this temptation, especially if your home is up as collateral one your consolidation of debt loan. Should you feel that you will utilize your credit cards and accounts in the future, rather put the cards in a safe place, out of your wallet. This will assist in driving off the temptation and need to spend on these accounts. It may sound silly, but how many times have you pulled out the credit card and purchased something which you actually did not need; over and above this fact it really defeats the object of consolidation of debt.

The process and point of consolidation of debt is to inch your way towards a debt free lifestyle which is rewarding from a personal aspect as well as a financial benefit and an interest cost savings too. Use this process and option wisely to benefit your financial and credit wellbeing.

1. Make an expenditure list

Write down everything you spend. You will be surprised at some of the things you spend money on, that you do not have to. Just think if you cut out the journey to the coffee shop every morning you could save anywhere between $10-$30 a week. That probably equivelents at least one debt payment per month. Once you have the information written down you will be much more motivated to not spend in certain areas. It may even help you become a gourmet home cook or cut down on smoking.

2. Make best use of credit cards

See if any of your credit cards have interest free offers or transfer any credit card debts to a new interest free credit card. The 6-12 months in interest relief could give you the money to pay off another debt.

3. Catch up on the world for free

Watch the morning news on the tv or read it on the internet. You will save around $5-7 dollars a week in newspapers.

4. Assess all your household bills and expenses

See if there are any cheaper suppliers. I know I save a bundle when I combined my gas and electricity payments. You may also be able to cut back on certain cable channels or even combine internet / phone and TV. You may be able to find a cheaper supermarket for food or buy your gas from another station on your daily route.

5. Budget for the coming month

Look at your household income and work out a reasonable budget and if you can include a little cash to spare for those “out of the blue” moments.

6. Separate your money from debt money

Create a new bank account or, if your account allows it, a new pot. That way you can easily keep track of how much is left as the month draws on.

7. Leave temptation at home

Leave all credit cards, debit cards and check books that are unneeded at home. If you never need these cards, keep the account details on file and cut them up. I always enjoy seeing how many pieces I can cut a card into!

8. Get a long term plan

If you are in a large amount of debt then there is no point fooling yourself into thinking that it will disappear in a flash. Set yourself up for the long haul and it will be much easier to stick to and not get depressed.

9. Join Ebay and have a yard sale

“One man’s junk is another man’s treasure”. Look around your home, if you have been there a while, chances are you have a lot of stuff that you really don’t need. Collect it all together and sell all the quality items by auction on ebay. The rest can be sold in a yard sale. You may end up with a bigger lump sum than you imagined.

10. Make some more money with your free time

With some of the free hours you have every week you could make some extra money from your hobby or find a part time job. I started blogging as a hobby and ended up making money on the side. Now it is my full time job. Your knowledge should not be undervalued. You may be an expert gardener or be able to create some great art to sell. Alternatively a couple of hours working at the a pizza restaurant or local store may actually be fun and prevent you from spending.

11. Ask for a raise

Most people feel undervalued at work. It is said “if you don’t ask you will not receive”, so ask your boss and you may be surprised. Company policy is often never to offer a raise unless asked.

12. Lose the shame of debt

Debt is very common and many people are in the same situation as you. If you let your friends and family know then the attitude towards you will be a lot more open and people will be more willing to spend time with you in non-spending situations. You may even be forced to take some free drinks from close friends on the occasional Friday night. Don’t be ashamed, these are your friends and you will be there for them one day too.

13. Speak to a professional

This is something that will go hand in hand with these tips and many professionals will give you many more ideas on top of these. You may be able to consolidate some of your debts or even wipe some off or propose settlement offers.