Does that sound familiar? It's totally frustrating. It's very easy to log your spending and identify high interest credit cards to pay off, but what happens when there is still more month left when the money runs out?

In the case of our family, debt elimination was only possible when debt consolidation was achieved by drawing on home equity and refinancing the mortgage.

If we had not gone this route, trying to stay on top of huge debt payments is a slippery slope that can very quickly become serious financial stress.

Consider the fact that Americans are declaring bankruptcy at record rates. One in every 100 families is affected by a bankruptcy.

I was on this slope 10 years ago. One of the most insightful moments of the process was preparing a written log for the trustee of all of our spending for the 5 years leading up to bankruptcy.

Skip ahead many years later and I am again juggling too many payments and not enough money.

The problem is simple. Raising a family, repairing the house, feeding everyone, takes a lot of surplus money. Even when budgeted for. Sound familiar?

Our advisor mapped out a debt elimination plan that included debt consolidation by refinancing our home mortgage.

The numbers were amazing. With record low interest rates, we rolled in $40,000 of consumer debt into our mortgage. Our mortgage payment stayed virtually the same, and we reduced monthly cash flow going out the door to cover debt payments by $900 per month.

I couldn't believe it. Was that possible? It was and it allowed us to work on our debt elimination over a longer, more manageable length of time.

There are pros and cons of course. The big advantage here is that you are able to avoid bankruptcy. The danger is that with the pressure off, you will return to building up debt on your credit cards etc.

Some points to consider:

1. You reduce the number of physical payments you make per month from many to one (that's good)

2. You might be able to get a reduced interest rate by using your house as the collateral (reduced rate: that's good, but house as collateral: hmmm)

3. Typically your total monthly outlay will be lower (that's good)

4. You only have to deal with a single creditor (that's good)

5. You might get some tax breaks out of the deal (that's good)

6. Your credit cards are cleaned, meaning that your free to spend (not so good)

7. It'll take longer to pay off your debt (not so good)

8. You'll likely paying out more over the life of the loan; even though you're making a lower payment, you're paying off the loan over a much longer period of time (not good)

9. You can loose everything if you default on this loan, since it's a secured loan (definitely not good)

To ensure this plan doesn't stray off course, some helpful ideas may include closing your credit card accounts once they are paid out.

Building a spending plan and tracking money that is coming in and out is a great way to stay on top of the new cash picture. Computer accounting programs that automatically download transactions is extremely helpful.

In some cases, it is a great idea to get some help. For some people, the problem of overspending is a psychological one.

Spending can become a habit that's as difficult to kick as alcohol, drugs or gambling.

For our family, the key is not to return to our spending ways after debt elimination through debt consolidation takes some of the pressure off. That will be our focus.

Copyright 2005/2006