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It’s a sad truth that for many people who struggle with financial problems, cutting the cable and making a budget aren’t going to be enough. Don’t get me wrong, these and other money saving tips and frugal tricks will help and provide good habits for the future. However, if the money coming in is a lot less than the money going out, there’s only so much fat you can trim before you’re down to the bone.
In fact, several members of my own family suffer from this dilemma. It’s not a story with a happy ending, but it bears telling. Let’s call them Alice and Bob.
No one starts out in debt and they were no different. Alice and Bob purchased a home in the early 2000s for $350,000. Even with the recession and economic downturn, it’s worth about $750,000 to $800,000 today. The problem? They owe more than that much on their mortgage and assorted debts. Uh oh.
It didn’t happen overnight. When they purchased the home, times were good and money was coming in. But over the years, there were fewer overtime hours at work, and then fewer hours in general. The flow of money shrank, but their expenses stayed the same. In some areas, it even rose.
It started with the dining room set, oak and beautiful. They bought it on credit the first year after purchasing the home. It was followed by the living room set, complete with matching side tables. There were normal life events, like dentistry and visits to the hospital. There were car repairs and roof repairs. Most of these items were charged onto credit cards. And why not, they probably reasoned. They had plenty of money coming in to cover the monthly bills.
Even as their bills exceeded their income, they still continued being good consumers. The economy was good and the demand for housing was high, so they were able to refinance their home and use the money to continue their lifestyle. But with the recent economic downturn, Alice and Bob have not been able to get more financing and are faced with monthly debts and bills nearly 50% higher than their paycheque.
In these situations, paring down on services or eating a bit more cheaply only serves to stem the flow of blood. Indeed, for Alice and Bob, even getting part time jobs would not help them break even in their monthly budget. They are simply paying too much money in interest payments to various lenders and credit cards.
Instead, credit counselling in combination with consolidating their debts might help them manage their monthly payments. Often, the debts can be rolled into a single loan and the resulting consolidated credit payment is much lower than the minimum payments of many smaller loans. Many companies offering debt consolidation will also offer credit counselling services. They can help individuals like Alice and Bob figure out a budget and payment plan that will help them eliminate their debt and, hopefully, live within their means.
If you decide to seek out consolidated credit, be sure to research each company carefully. It can be a great way to start reaching towards financial freedom, but like any loan, it carries risks. A good credit counselor will help you come up with a debt management plan, navigate the risks and steer you towards a solid financial future.
Have you ever used a credit counselor or taken steps to consolidate your debts?
