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Have you ever considered taking an opportunity to consolidate debt that you have hanging over your head? Well, as I’ve written about extensively, we have more than a few thousand dollars in debt to our names, and consolidation is a tool we’ve considered using at multiple points on our journey.

But on the flip side, I’ve also heard more than a few horror stories about folks that consolidated their debt only to fall further into the hole they had dug for themselves… So today, I have an expert here to help educate us about the debt consolidation process – and when it may be an appropriate tool for you to pull out of that toolbox!

Joseph Hogue worked as an equity analyst and an economist before realizing being rich is no substitute for being happy. He now runs five websites and a YouTube channel on beating debt, making more money and making your money work for you. A veteran of the Marine Corps, he now makes more money than he ever did at a 9-to-5 job and loves building his work from home business.

I’ll let Joseph take it from here:

I consolidated over $16,000 in credit card debt in 2009 after destroying my credit…I’ll never do it again.

Not because consolidating your debt is a bad tool in your financial toolbox. It’s not because of all the horror stories you hear about debt consolidation like falling further down that bottomless pit of debt.

It’s because I did it right.

I used my debt consolidation loan to get back on my feet, to get out from under high-interest card debt and to get my monthly payments down to something I could manage each month.

I feel like it’s a story you don’t hear often, and I’ve certainly seen many of the horror stories.

But if done right, you can be one of the success stories. I haven’t consolidated my debt since and I plan on never doing it again because I’ve committed to never having that kind of crushing debt again.

Debt consolidation can be risky though so I want to start with some of the dangers

In truth, I’d rather you be scared away from consolidating your debt rather than do it incorrectly.

If you’re still with me though – if you’re ready to consolidate your debt the right way, then I’ll show you how to use it as a tool to turn your financial life around.

How to NOT Consolidate Debt

Don’t get me wrong. I’m not totally anti-debt. In fact, Mike’s argument about debt as a tool resonated with my equity analyst days and how the use of financial leverage has helped companies like Apple become the first to reach the $1 trillion mark.

But debt consolidation is a controversial topic because it can go so wrong, so fast.

Watch out for these two warning signs of debt consolidation gone wrong before you start the process.

Consolidating Debt When You’re Still Living Above Your Means

When you consolidate your debt, you’ll have a whole lot of available credit on your credit cards. The former card balances will be sitting nicely in a new loan, and your credit cards will be breathing easy with zero balances.

Credit card companies don’t like unused credit limits and once you pay off your debt via a consolidation plan, credit card companies will start hounding you.

They’ll send out low or no-interest checks so you can easily rack up those card balances again. They’ll entice you with visions of new cars or extravagant vacations.

If you haven’t settled in your mind (and your spouse along with you) that you’re done using debt, you could fall for the bait and start using your credit cards again.

Then you’ll have your consolidation loan AND more credit card debt to deal with. Not good…

Before you consolidate your debt, sit down and have a talk with yourself and/or your significant other. Talk until you’re both perfectly certain you’re done living above your means.

Be sure you’re desperate enough to want to pay your debt off and pay it off quickly. Getting to that “sick and tired” state of mind will help ensure you won’t be wooed by attractive marketing schemes made to lure you into taking on more debt.

Consolidating Debt with the Wrong Lender

When you consolidate debt, it’s smart to know what you’re getting into as far as loan terms. As with any company, there are good and bad lenders out there.

Finding a good lender to help you consolidate debt can be especially risky if you’ve got bad credit. If you don’t qualify for a traditional bank loan, you may need to look for a reputable peer-to-peer lending site to consolidate.

Peer-to-peer lenders use money from private investors (like you and me) to lend to those needing loans. If you have to use a peer-to-peer lender instead of a traditional bank in order to consolidate, be sure you choose one that’s got a good reputation.

Use a lender with a good Better Business Bureau rating and fair lending terms that will help you save money as you consolidate. Make sure you read the fine print before taking on any loan so you know exactly what you’re getting into.

Next, let’s talk about how to consolidate debt responsibly.

How to Consolidate Debt Responsibly

There are ways to consolidate debt so you can pay off your loans and credit cards quickly – and hopefully permanently. Here are some ideas.

Explore Your Consolidation Options

If you’re ready to consolidate your debt you’ll likely have several options. Here are some ideas for consolidation options:

Use a peer-to-peer lender as mentioned above.

Visit your local bank or credit union to get a loan.

Find a zero-balance credit card offer that will approve a larger credit limit.

Borrow from a close family member.

However, if you’re able to obtain a loan from a family member like a parent, please use caution. Make sure if you go that route you’re committed to paying it off.

No amount of money is worth losing a relationship over.

Explore all of your consolidation options and see which is best for your situation. Look at payment amounts, loan terms, interest rates, and fees.

Choose the route that best allows you to get your debts paid off without putting additional strain on your budget.

Be Committed to Getting and Staying Debt Free

Paying off debt can be an overwhelming process. There will be days you’ll be pumped as you see your debt balances decrease. Then there will be days you’ll feel like your loan balance will never reach zero.

It can be tempting during times of discouragement to toss your plan out the window and spend like an NFL player with a brand new multi-million-dollar contract in his hands.

Don’t do it. Use visualization and other methods of encouragement to keep yourself on track. Cut up your credit cards so you can’t use them again. Or give them to a trusted friend that won’t cave to your pleas to have them back.

The more committed you are to getting and staying debt free, the less chance you’ll have of turning your debt consolidation plan into a disaster.

Find Ways to Motivate Yourself to Stay on Track

Staying motivated as you work a debt consolidation plan is vital. Here are some options for staying motivated during your debt payoff plan:

Spend your free time with like-minded people. Hang out with others who are working on debt freedom or other financial goals.

Read personal finance blogs like Marriage, Kids, and Money.

Check out personal finance books from your local library.

Join a personal finance networking group in your area – or start your own.

Keeping track of the numbers such as your decreasing loan balances and your increasing credit score can also be very motivating. Getting a great credit score is important. Credit scores aren’t just used for borrowing purposes.

Employers and businesses will use your credit score to make hiring decisions or determine service rates for car insurance and such.

The more motivators you have around you as you pay off your debt, the better your chances of debt consolidation success.

Paying off your debt has so many benefits

No more large credit card balances looming over your head. No more paycheck-to-paycheck living.

More money free each month to reach financial goals such as achieving financial independence or getting to that million-dollar net worth.

Debt consolidation can be a great tool to help you drastically improve your financial life – if you do it right. Use the tips above to help pay off your debt faster and save money at the same time.

Reader’s Input

Have you ever considered debt consolidation or have you been through the process yourself? I’d love to hear about your experiences or thoughts in the comments below! Let’s keep this discussion going.

Thanks for reading!

If you’re interested in discovering a better version of yourself – whether with fitness, finance, or family – then subscribe below to MikedUp Blog’s FREE newsletter and let’s improve together!

I’m glad you’re here. Thanks again and talk soon!

– Mike