Beyond Debt Consolidation: Five Next Steps

Debt consolidation is like dieting. It is a step you take to fix a problem, perhaps under emergency conditions. It involves sacrifice. It requires the support and cooperation of the people around you. Perhaps the most importantly, as with dieting, you have to be very careful that the problem doesn't come right back after you've taken steps to get rid of it.

Debt Consolidation Plan In Place

Let's assume you've put a debt consolidation plan in place. You've cut up some credit cards, used a debt consolidation loan to pay off your most expensive sources of debt, and maybe even had to call in a debt settlement company. You may feel you've made all the right moves, but that's just a start. Here are five things that come next:

• Communicate the game plan to your family. Going on a budget affects everyone in your home. Do yourself a favor and communicate this up front. It is much easier to get the financial realities out in the open than to have a constant series of arguments with disappointed family members about why they can't have all the things they want. It might even be a learning experience for children who will someday be managing their own finances. In communicating the game plan, be sure to emphasize the long-term benefit --how you will all be better off in the long run by getting your finances back on solid ground.
• Be upfront with your friends. You don't have to go into the level of detail you would with your family, but cutting costs is easier if your friends know not to expect you to join in expensive plans and outings. This may seem awkward, but these days, a great many people are having financial difficulties. The difference is you can seem in control of your situation by communicating a rational program, rather than just being the person who always avoids picking up the check.
• Monitor your payback timeline. As part of a debt consolidation plan, you should have set a budget to make sure you are paying down debt rather than growing it back. The best way to see if everything is working is to create a timeline for when your debts should be paid off, and monitoring to make sure you remain on track to meet this schedule.
• Look for opportunities to improve your debt consolidation loan. Your debt consolidation loan may be a step forward from where you were, but as time goes on, you may find still cheaper ways to consolidate your debts. Interest rates may fall, improving credit may qualify you for a better rate, or building home equity might allow you to use a mortgage as a debt consolidation loan.
• Closely monitor any debt settlement results. If you have used a debt settlement company, keep a close eye on how much of your payments are actually going to your creditors. Ultimately, make sure you obtain settlement letters from any creditors they deal with, and verify the effect this has on your credit rating. Remember, you may delegate the negotiation with creditors, but the responsibility remains yours.

Similar to the long-term goal of dieting, the best debt consolidation program is one that gets the debt off your balance sheet and keeps it off.

About the Author:
Richard Barrington has been a businessman and writer for a quarter century. Shortly after graduating Magna Cum Laude from St. John Fisher College in 1983, Richard joined Manning & Napier Advisors, Inc., a Registered Investment Advisor. Starting in an entry-level operations position, he worked his way up to become head of marketing and client service, an owner of the firm, and a member of its governing Executive Committee. His efforts contributed to the firms growth from slightly over $1 billion in assets under management when he joined, to over $12 billion in 2006. While at Manning & Napier, Richard earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the CFA Institute").

In August, 2006, Richard retired from the investment business to pursue a writing career. He has worked primarily as a freelance writer on a variety of business topics, while also writing manuscripts for three books.