* For a more in depth discussion of how you actaully pay more with debt consolidation loans even though your monthly payment is less see my article on whether or nor debt consolidation loans are good for the long term.
Earn More Money
If you have a lot of debt then it is obviously the case that you do not earn enough money to handle your current lifestyle or that some unexpected emergency has come upon you, destroying your financial health. In some cases, both are true.
One of the remedies for a situation like this is to begin to close the gap between income and expenses by increasing the amount of money that one makes. Charles Dickens has a really interesting quote that sums things up nicely:
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.Now nobody - not even the British - use this pound system anymore, but that is not the point. The point here is that in one scenario we have a person earning more than they spend which results in a happy state for them. In the other scenario we have a person who has earned less than he spends and the result for him is the misery of indebtedness.*
*This was a misery known firsthand by Mr. Dickens who spent some time inside a debtors prison as a result of his father falling into debt. Dickens had to work in order to get his family out of this prison as a child.
Here are some ideas concerning how you might be able to earn some extra income:
- Get a second job - It doesn't have to be glamorous, it just has to get you extra income and be flexible enough to fit in with your current job. If you don't currently have a job then you need to get one - now!
- Ask for more money at your current job - This may be a tough road to hoe in today's job market and economy, but it will not hurt to ask. This is especially true if you are a key player at your work.
- Make what money you have work for you - Having all your cash sitting in a non-interest bearing checking account is not going to help you get out debt any quicker. Put some of it in a higher yielding savings account at your bank or one of the many online banks that offer great rates.
- Recycle - You can earn hundreds of dollars just by recycling all the cans and plastic bottles that your family uses each month (if you live in a state that does this). But the real money is earned in recycling other people's aluminum cans and plastic bottles. So get creative and save the earth while you get out of debt.
- Learn to earn money online - The internet is full of ways to earn an extra buck here and there. Learn some of them and start making your hobby into a full fledged earner for you.
Spend Less Money
The flip side of the Charles Dickens quote mentioned above is this: if you are spending more than you currently make maybe it is time for you to cut back on your spending. There are literally thousands of ways for you to do this, so I will not and cannot go into intricate detail about this. Instead I will list some of the major ways that you can cut costs in your life:
- Change your eating habits. Spending $6-$10 a meal is not going to get you out of debt anytime soon. That amounts to an astonishing $360 a month just for lunch and dinner for one person! Currently, my wife and I feed two adults for around $160 a month (sometimes more and sometimes less). That works out to be about $0.89 a meal for breakfast, lunch and dinner. I think we eat well and I am extremely active, biking 110 miles a week. You can definitely spend less than $150 per month per person.
- Change your driving habits. Cars are insanely expensive. Having two cars is twice as insanely expensive. If debt is strangling your finances and you want to avoid a debt consolidation loan then one way to go about it is to get rid of one of you cars. You'll have a nice little cash surge from the sale and you won't have all the reoccurring costs of owning a car. I recommend bike commuting, but you can always use public transportation if you live in a climate where year round bike commuting isn't feasible.
- Make sure your housing situation is optimal. If you are a renter - or even a home owner - make sure that your housing arrangement gives you what you need. If you are overpaying because you have more space than you need consider down sizing. If your home is too far away from work or the grocery store then maybe a relocation is in order. Housing can be the largest single expense a family pays so making sure that this is in order can make a huge difference in your ability to pay down debt quickly.
- Stop buying clothes you don't need. You can generally get clothes very cheaply through thrift and second hand stores, close-out sales, or off season shopping. There is no reason why you should every pay full price for a clothing item and there is no reason why you should buy something that is not absolutely necessary. Shopping will never solve your problems while not shopping will solve your debt problem.
Consolidate Credit Card Debt Onto 0% APY Card
Consolidating via credit card can definitely hurt your credit score (since getting a new card can be impact your score negatively) and it can be difficult to get one of these great deals given today's credit crunch or a history of bad credit, but there is no better solution for this type of debt than this. Getting a 0% APY credit card is a really, really, good idea because you will not be paying any interest on the balance of the card.
Why is this such a good deal? The monthly interest paid on a balance of $1000 and an interest rate of 7% is $5.83. If you have a total credit card debt of $22,000 you will be saving $128.33 a month. But most credit cards have a much higher interest rate - like 13% and up. The amount of interest you will have to pay on a card like that is $238 a month. $238 a month is equal to working ~33 hours at minimum wage (considering that minimum wage is $7.25 per hour effective July 24, 2009). At current minimum wage rates ($6.55) you would have to work 36 hours.
Wouldn't you want 33 hours of your life back? I know I would. Besides, paying 0% in interest sure beats having to get an unsecured debt settlement signature loan and paying up the whazzu in interest.
Sell Underused or Unused Possessions
If you haven't used something in a year or more then it is time to get it out of the house. Sell such items on Ebay or Craiglist and put all the money toward paying off your debts early. It might be hard to part with a beloved shirt or sweater - but avoiding debt consolidation loans is important if you want to save money over the long run. It simply has to be done.
Selling items is also a great way to get rid of things that have reoccurring expenses. Maintaining items - like boats, RVs, and motor bikes - can be extremely expensive and buy getting them out of your hands you put cash in their place end up with less of a drain on your income than before.
Just remember that all the money you earn needs to go to paying down your debt or else you are just going to find yourself in the same exact position you started in: having a lot of crap stuff that you don't even use.
Become Financially Aware
Budgeting. Saving. Investing. All of these words are used by people who have some financial sense. If you are in massive debt then you need to get some financial sense. There are tons of places to do so: the library, the internet, neighbors, churches, and community centers just to name a few. The vast majority of the information is going to be free so it really is up to you to go out there and find it. Get on the internet; go to your library; talk to your pastor; ask a neighbor; get out of debt.
Avoiding a debt consolidation loan is definitely simple if you follow these 5 suggestions, but it may not be easy - especially if you have grown accustom to living a crazy, debt filled life.