Wednesday, March 19, 2008

Have a Debt Management Plan

I’ve only had a couple of experiences with getting Personal Loans. One time we took out a personal loan to buy some items that we wanted and there was no real problem with it except having to pay it back! The other was when my daughter decided to take out a personal Loan to consolidate her bills when she finished her education. She had taken out quite a few loans during her schooling, including for her tuition and living expenses. She had gotten pretty much every credit card that had been offered her and taken out loans for even just spending money!

When she finished school she was all of the sudden overwhelmed with the number of bills she was receiving. She learned one of those lessons we all learn at some point or the other, that being, its easy to get a loan but they do eventually come due! She found herself neck deep in debt before she even had a job. I felt really bad for her, but its one of those lessons we have to learn. She needed a Debt Management Plan.

Her first reason was to cut up all her credit cards. That was good. She tried for a while to pay on each bill, but she wasn’t getting ahead because she was only paying the minimum every month. I advised her to concentrate on paying off one bill at a time. That she’d have to pay more than the minimum and to pay as much as she could on one bill to get it paid off. Then move on to the next bill and concentrate on that one until she paid it off.

She went ahead and applied for a personal Loan anyway and called me in tears several times in the process. The AMOUNT it was going to take to pay off those bills was a little staggering. I kept advising her to break it down into manageable pieces and pay off one bill at a time. That’s basically all I could tell her because that’s what has worked for me in the past. Plus, as I didn’t mind reminding her, I had TOLD her not to get all those credit cards!

I was reminded of that when I was reading this article on why its not a good idea to use a personal loan to consolidate debt. As the article points out, it has a negative affect on your credit and as she found out, can be overwhelming to have to pay off that one big bill.