Before we get into why you would consolidate your debt, let’s make sure everyone understands what debt consolidation is: Moving all of your current debt to fewer sources of debt. What that means to most people is using a loan (or even a credit card) to pay off their other debt.

Why would you consolidate your debt?

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Using the information provided in three of my posts, you can get most of the services that Lifelock offers, without having to pay for them.

If you want someone to do the work for you, then the $10 a months for Lifelock service may be worth it for you. Their service also comes with identity theft insurance. Their analogy to getting your oil changed does make sense. You could change your oil for less money than paying someone to do it, but for many people the small price of paying someone else is well worth not having to do it themselves.

If you decide to enroll, or for more information, use this referral link:

For information on how to do it yourself for free, see these three posts:

Set/Renew Fraud Alerts in Your Credit Report
Opt Out of Pre-Screened Credit Card Offers
Get Your Free Yearly Credit Report

Setting fraud alerts in your credit reports is free and easy. Simply call or visit the credit reporting agencies and request a fraud alert be placed in your report. Doing so should cause new credit requests to be validated by calling you at the phone number you provide. It doesn’t always work, so stay on top of your report. Also remember to renew these alerts every 90 days! Here are the contact numbers and websites to set alerts at. Set your alert with all three agencies to ensure complete coverage. This is a free service.

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Two things to remember, especially when you’re first starting out in investing, are commissions and taxes.

Commissions:

After I made my first few investments I had a small amount of cash left in my account. So I picked a cheap ($10) stock and bought a few shares. The stock really took off and after a year it had gone up 20%. That’s a pretty nice gain, but the value of my investment was so small that the commissions ate up a large chunk of that gain.

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You always hear about the importance of diversification. In general, that’s true. The average investor is going to be best served having a diversified portfolio. There aren’t any sure things in the world of investment. By spreading your risk across multiple investments you prevent one mistake from ruining your entire portfolio.

The other side of this philosophy is that by limiting your risk with diversification, you’re also limiting you gains. If you were to have all of your money in your best investment, then clearly you would have much better returns. The problem with that philosophy is that many of us don’t know which of are investments will perform the best. I like to think of diversification as ignorance insurance for this reason. Or, as Warren Buffett says: “Wide diversification is only required when investors do not understand what they are doing.”

I’m not saying that diversification is a bad thing. It’s just that the best returns are realized when you do the work to find the right investment and then take the large action required to make that work hugely worthwhile.

I was never a big fan of dollar cost averaging. It always seemed like being an active investor would yield the best results. Seeing the results of the one investment that I was using dollar cost averaging for has caused me to reconsider my thinking.

For those that don’t know, dollar cost averaging is periodically investing in something regardless of its current price. For instance, you might invest $1000 a month in a certain stock regardless of it’s current price. Depending on the price, you’d get more or less shares. The method works well for two reasons: You load up on shares when the price is beaten down and you largely take yourself out of the equation.

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To help protect myself against identity theft, I subscribe to a credit monitoring service for about $75 a year. The service grants unlimited review of my credit report, but the real value is the alerts that I can setup on my reports.

I have my service configured to alert me anytime there’s unusual activity in my credit reports. This includes applications for new credit, change of address, activity on dormant accounts, as well as balance changes on my revolving credit. It’s nice to get an email that says that my credit card bill jumped by a certain dollar amount or percent that I’ve setup. Then I can compare against my spending to see if it’s due to a purchase I made, or if something is awry.

There are other methods and services to guard your identity and credit report, but this is the one that I have found to be most useful with minimal cost or time investment.

Keeping your loose change in a coin jar is nothing new, but still a decent savings habit. You won’t miss the change, since individually it’s so small, but it can quickly add up. I recently cashed in my jar for about $100.

Gone are the days when you had to roll your coins and bring them to the bank to get cash. I just go to my grocery store and dump my jar into the Coinstar machine there. I wouldn’t use Coinstar if I had to pay their processing fee, since it’s a high 8.9%. That takes a big byte out of your total.

To get the Coinstar machine to count my coins for free, I take my cash in the form of an Amazon.com gift card. I shop regularly on Amazon anyway, so for me that’s nearly as good as cash. There are many other gift cards that you can choose to get free coin counting. Coinstar’s website estimates that a 1 Gallon jar of coins is worth over $225, which is more than just chump change.

Direct banking is a great way to turbocharge your savings account. Direct bank providers tend to offer significantly higher interest rates than your local bank. They are able to offer better rates of return because they don’t have physical branch locations and all of your transactions are done online, by phone, or by mail. This reduces their overhead and operational costs, which they pass on to their customers in the form of higher interest rates on deposits.

I compared Emigrant Direct, ING Direct, and HSBC Direct when I was setting up my account. At the time, HSBC was offering the best rate, so that’s who I went with. They were offering over 5% APY when I signed up, but that number changes frequently, so check with each of these banks, and others, to see which one offers the best rate now.

As required by The Fair Credit Reporting Act, you are entitled to one free copy of your credit report every 12 months. There are a lot of websites that offer you a “free” report, but usually only if you join their site and pay for one of their other services. The FTC lists annualcreditreport.com as the only official site offering this service.