Homeowners should beware the siren’s song of bill consolidation financed with home equity. While this approach offers many potential advantages such as lower monthly payments, lower interest rates and income tax deductibility, it is not a cure for indebtedness.
Bill consolidation does not change the amount of money owed. It is merely a restructure of debt. The lower monthly payment that results from bill consolidation should not be seen as an invitation to take on additional debt.
By improving cash flow, bill consolidation is a strategy designed to give debtors the time and breathing room necessary to strengthen their finances, so they can ultimately reduce their indebtedness.
To take full advantage of the opportunity debt consolidation presents, do the following:
- Make a commitment to live on cash — no credit cards or loans.
- Set financial goals. Identify spending priorities.
- Prepare a budget that reflects your financial goals and spending priorities.
- Develop the habit of saving regularly. Take advantage of your reduced loan payments to save.
- Save money for the short term in addition to saving for retirement. Short-term savings are what keep you from taking on more debt.
Do the above and your bill consolidation loan could be the first step toward getting out of debt for good.
Copyright 1997 K.C. Knouse
K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages