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A Debt Consolidation Loan Is Just One Step to Fixing Your Bad Credit

By Francine L. Huff
Mortgage Credit Problems Columnist


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Many people think a debt consolidation loan will solve their financial worries. But the key to digging yourself out of debt isn't just about getting a consolidation loan, it's about changing the behaviors that got you into a financial jam in the first place.

Clean Up Bad Credit

Before you get that debt consolidation quote from a lender make sure you understand that getting a loan doesn't give you license to go out and run up your credit card bills again. Simply put: stop using your credit cards. Cut them up and use cash or a debit card for all purchases going forward. The only way you can clean up your bad credit and really begin to fix your spending habits is to change your behavior starting now.

Understand Debt Consolidation Loan Terms

When comparing debt consolidation quotes make sure you understand the terms being offered to you. Ask questions before signing on the dotted line of a loan agreement. You want to know the interest rate being offered and length of the loan. Also, make sure you understand what fees or rate changes may apply if you miss or are late with monthly payments. Ask if there are any penalties for paying off the loan early.

Use a Budget

For many people budget is a bad word. But if you're serious about cleaning up your credit it's a necessary tool. Track your spending for about a month to see exactly where your money goes. Use a financial program such as Quicken or an Excel spreadsheet to set up categories for your spending. Look for areas where you can cut back, such as eating out, cable TV, phone bills, or impulse purchases.

Debt consolidation can be a good way to get your bills under control but it's important to do your part to improve your financial future. Be proactive about finding ways to slash your spending and find more money to put toward paying down debts. Pay more than the minimum monthly payment so you can pay off that debt consolidation loan quicker.

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