Debt Consolidation: Climbing the Mountain of Debt, One Step at a Time

Looking at national figures on consumer debt levels, it's not surprise that people are seeking debt consolidation help and debt settlement concessions in record numbers. Debt can look like an impossible mountain to climb, but as with any mountain, the trick to overcoming it is to take it one step at a time.

Imposing Mountain of Debt

Federal Reserve figures tell the story of growing debt burdens. In 1952, the ratio of household debt to disposable income was less than 40%. That ratio reached a peak of 107% in 2007! American consumer debt now totals $2.56 trillion.

So it's no surprise that credit cards are a particular target for debt consolidation programs. Credit card debt has risen to nearly a trillion dollars. That translates to $9,840 per household--up a staggering 232% in less than 20 years. As is often the case, the averages don't tell the whole story. There are, of course, people with no credit card debt at all, so there are also plenty of households with debt balances well above that $9,840 average.

Sensible Debt Consolidation Steps

Rather than being frozen by the sheer size of the problem, people would be well served to let it galvanize them into action. Here are some debt consolidation steps you should attempt if you can't get what you owe under control.

• Find a budget that's within your means. The first step is to stop the problem from getting any worse. Figure out what you can afford to spend on a monthly basis--allowing for some room to pay down the debt you've already accumulated--and don't exceed that budget limit.
• Rediscover cash. Credit cards are a tremendous convenience, but they are also the enemy of budgeting. If you can't rein in spending, consider putting your purchases on a weekly cash budget. Once the cash in your wallet is gone, you are done spending for the week.
• Understand what debt consolidation loans can and can't do. Debt consolidation loans can help you organize debt, lower interest rates, and spread payments out over a longer period. However, they may not be a viable option if you have bad credit, and they don't necessarily bring your debt burden within your budget.
• Negotiate for better terms. Instead of simply falling behind on payments, take the initiative to contact creditors and negotiate for better terms.
• Document any debt settlements. If a creditor agrees to settle part of your debt, be sure the arrangement is documented in writing.
• Let small steps become big steps. Start paying off balances one at a time, starting with your highest-interest credit cards.Debt consolidation doesn't necessarily involve a loan--paying off balances one by one will help you gradually concentrate debt in more affordable sources. Each card you pay off will give you more income to devote to subsequent balances, so your steps toward debt consolidation and control will become bigger and bigger.

If you find yourself under a mountain of debt, it is clear you are not alone. What's most important is to start taking steps to overcome that mountain. If you don't let a day go by without acting on some step to get out of debt, you'll always be one day closer to solving your debt problems.

Sources:

• Federal Reserve
• Santa Rosa Press Democrat

About the Author:
Richard Barrington has been a businessman and writer for a quarter century. Shortly after graduating Magna Cum Laude from St. John Fisher College in 1983, Richard joined Manning & Napier Advisors, Inc., a Registered Investment Advisor. Starting in an entry-level operations position, he worked his way up to become head of marketing and client service, an owner of the firm, and a member of its governing Executive Committee. His efforts contributed to the firms growth from slightly over $1 billion in assets under management when he joined, to over $12 billion in 2006. While at Manning & Napier, Richard earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the CFA Institute").

In August, 2006, Richard retired from the investment business to pursue a writing career. He has worked primarily as a freelance writer on a variety of business topics, while also writing manuscripts for three books.