By Francine L. Huff
Mortgage Credit Problems Columnist

Debt consolidation can help people lower their monthly payments and pay less interest. But it's not necessary to use a debt consolidation service for this. By educating themselves about credit and budgeting techniques, many people can dig themselves out of debt while avoiding unnecessary fees and potential scams.

Debt Consolidation Scams

Scores of companies offering debt consolidation loans have popped up on the Internet and in TV ads and it's often difficult to know which ones to trust. Although there are many reputable debt consolidation services out there, there is fraud in the industry. Avoid those companies that:

• Charge excessive fees
• Make unrealistic claims to reduce debts and get creditors to waive all penalties and fees
• Give debt management plans or other products a hard sell
• Claim that they can eliminate student loans
• Promise to instantly repair credit history or remove debts from credit reports

Setting SMART Goals

Anyone who is willing to do the work necessary to put together a debt consolidation plan can achieve success -- even if they owe a lot of creditors. The first step is to set up SMART goals, which are:

• Specific to determine exactly what a person hopes to accomplish
• Measurable so that progress can be quantified
• Attainable to avoid discouragement -- break down larger goals into smaller parts if necessary
• Realistic so that they can actually be achieved
• Timely means setting a time limit to reach goals

Budgeting Specifics

Constructing a budget means first listing all debts -- the balances, interest rates, and monthly payments, as well as normal monthly expenses like utility payments, food, gas, and insurance. There are also optional items like clothing, entertainment, and gifts. While most people know what they spend on bill payments, they don't always know what cappuccinos, restaurant meals, and movies cost. By tracking these for a month, budgeters can see how much was spent for what, then decide what they can cut in their quest for financial health.

Once they know how much money they have coming in and going out they can focus on tackling their debts. Hopefully, by eliminating unnecessary and impulse spending, extra money can be found in a person's budget to put toward debt repayment. However, even after cutting excess spending, some people may turn to a debt consolidation loan, home equity loan, or zero- or low-interest balance transfer offer on a credit card.

Although debt consolidation loans can help people pay down balances and lower their monthly payments, there is a risk that they will run up new debts on credit lines that remain open. To avoid this it's important to work on fixing some of the issues that led to overspending in the first place.

Source
SmartCreditInfo.com

About the Author

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

Other Recommended Consolidation Options Articles

• Refinance or home equity loan for debt consolidation?
• Six Options For Managing Debt
• What You Should Know About New Rules for Debt Relief Services