Causes and Cures for bad debt

The idea behind debt consolidation, is that it's supposed to help you manage your debt, in order for you to get free of it. Basically, you combine all your bills into one, which then has a lower monthly payment, than if you were to combine existing payments of each of you debts. Sounds good in principal, but I have read in more than a few periodicals, including the NY Times and Time Magazine, that many people are finding themselves with the same debt load two years later. How could this be you ask?

Simple, for these people, debt consolidation is treated like a symptom, not the underlying problem. Your debt consolidation will only work if you treat the cause. Let's examine a few of the most popular causes of chronic debt and then I'll provide some treatments for this particular cause.

CAUSE 1: You are very sick and/or had a major accident. In this case, depending on how sick you are and what your prognosis is, the best you might be able to do is tough it out until you get better or receive a major settlement. If you're going to "tough it out," then it's critical that you stay current on all your non-medical bills. Next you'll want to negotiate the medical ones (or use debt consolidation). In this case, as strange as it may seem to you, you should pay your utilities bill before your doctor bill. There are people to help. There's a good chance that your hospital has someone on staff to help you find them. Let your medical care providers know that you are going to pay them, in time. Most doctors will work with you on a payment plan (or in debt consolidation). A few year's back, about a year after our first child was born, we finally received the medical bills showing what we owed (after insurance had paid it's claims). At the time, I couldn't afford to pay the entire bill. We spoke with the OBGYN and asked to break down the payments into 3 terms. Believe it or not, the Dr. was overjoyed that we had contacted her and was very willing to let us pay over 3 months. Prescriptions, unfortunately, are trickier; because unless you have easy access to Canada, you probably can't negotiate the price of your medication. You'll likely have to do your best to buy your meds, while you work around your other debt. Bottomline, Medical bills are the largest cause of bankruptcy in America by a large margin. Look for help as soon as you think you're getting into trouble. Don't be ashamed. It's better to get some advice and move in the right direction, than to wait too long and eventually have no options besides bankruptcy.

CAUSE 2: You are/were a graduate student. Graduate school leaves most people far more in debt than undergraduate school. There are post-graduate student loans that can help you with debt consolidation on the debt that you got into when your student loans didn't cover bread. Also, use your research skills on budgeting and debt consolidation to figure out your finances.

CAUSE 3: You don't make enough, but what is enough? Are you living in a big house? Do you have a big car payment every month? If you said yes to either of these questions, then your best solution may to sell your car and get into one that is more affordable and/or sell your too big house. However, if you are living in cheap housing for your area and have a reasonable car note, then you may truly need another job that pays more. It just might be time to polish off your resume or go back to school. For you, debt consolidation will only be part of the solution. Also, look into government assistance. There shouldn't be any shame in asking for help.

CAUSE 4: You and/or your spouse have a spending problem If you send your husband for a snare drum and he returns with a drum set, you might have a spending problem. If you give your kids whatever they want, whenever they want it, you might have a spending problem. If you find yourself constantly watching the Home Shopping Network, looking for the next best deal, you might have a spending problem. If you walk into your favorite bar or restaurant and the entire wait staff knows you by name and cheers, you might have a spending problem. Lastly, if your dog has a diamond studded necklace and a weekly massage, you might have a spending problem. If you spend more than you make and it's not caused by any of the issues discussed above, then you either need a therapist or a financial counselor with a budget plan. My guess is that you need. Debt consolidation will only work after you fix your spending problem. Otherwise, debt consolidation will just provide you with a false sense that you don't think owe as much as you really you do owe.

CAUSE 5: Creativity, if you have creatively found a way into debt, like starting a law firm or some kind of business that required you to spend money to get the business going, then you need a unique solution. I recommend that you not only talk to a certified credit counselor, but also talk to your business' or a personal accountant about your situation. Debt consolidation, in this case, may or may not be right for you