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Debt Consolidation is a debt management plan that helps you control your debts and helps you get control of your finances. There are a number of different steps you will need to take, as suggested by financial consultants and advisors, to help you get rid of all your bad debts.

Here is the step-by-step process that is practiced while following a Debt Consolidation Plan. These steps are:

Step #1
: Know What You Owe and Beyond

Step #2
: Cut Your Expenses

Step #3: Find an Extra Source of Income    

Step #4: Prioritize Your Debts and Pay Them Off

Step #5
: Take Action
Credit Card Consolidation

Let's get examine exactly what you need to do for each step...


Step #1: Know What You Owe and Beyond
It is very important that you know how much you owe. But just as important, you need to know all the outstanding debts of your family. In all likelihood you are not aware of the debts your spouse or children have, which may ultimately become your responsibility.

Therefore it is essential that you discuss your plan of going on a Debt Consolidation Plan with your family and analyze the actual figures of your debts, including the interest. Categorize your debt according to its type, such as debt owing to meeting day–to-day expenses, investments, and/or education.

Step #2: Cut Your Expenses
If you owe a debt that costs more than your day-to-day expenses, work out a plan to pay it down as soon as possible. As you probably already know, it is not a good to manage your daily life on credit cards or personal loans.

Some ideas include finding other sources of income or work out drastic cost-controlling steps to get out of borrowing money to live day-to-day.

Follow the Debt Consolidation Plan By Cutting Expenses
When you are on a Debt Consolidation Plan, you may have to restrain from a lot of the temptations and "little luxuries" until your debts get paid.

It is difficult when you first start your Debt Consolidation Plan to forego the things you are accustomed to just doing but once you have given up those little indulgences, you will start to see your savings account rise and your credit card balances decrease. Once you begin to see that it will make the short-term sacrifices well worth the effort.

Get Extreme: Cutting Back as Much as Possible
If your current debt situation is extreme, you might have to get extreme with your Debt Consolidation Plan. Let me explain.

Taking the above steps one step further, you should try to put off all possible expenses. Prioritize your needs as the most important, important and less important.

Meet all the "most important" needs, compromise on certain "important" needs, and ignore the "less important" needs completely. Try this "Extreme Debt Consolidation Plan" for one or two months and you will quickly get back on the right track.

Step #3: Find an Extra Source of Income
This is an important step to reduce your debts. Every family can work out an alternate source of income, either from a part-time job or by a running a small business.

You may opt for working as a tutor on a part-time basis or work as an agent to sell some financial products. These types of jobs do not require any additional investments, and the best part is that these type of jobs are flexible in terms of time. You have the opportunity to schedule when you work (and how often you want to work).

Step #4: Prioritize Your Debts and Pay Them Off
The earlier you reach this level, the better. Once you work out your Debt Consolidation Plan, start paying off your debts immediately.

You should give priority to the debts that cost you the most. This usually means your credit card debts.

Try to follow innovative debt reduction options such as consolidating your debts and/or refinancing your mortgage. These type of options will help you rapidly get out of debt.

Before refinancing your debts or taking drastic actions, you should meet with a qualified financial advisor. They can guide and help you, as well as make sure that you are not making any major financial mistakes.

Step #5: Take Action
Now that you know the basics of a Debt Consolidation Plan, you only have one more thing to do - Take Action!

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