28 Feb All you need to know about the right strategy for debt consolidation
Debt consolidation is a debt management tool that can be highly useful for paying multiple debts off. At the end of the day, it’s a new loan, which means that individuals should plan ahead and have a strategy in place in order to make sure that they can afford to repay the loan.
How does debt consolidation work?
Debt consolidation involves taking out a new loan which can be used to repay multiple creditors you may have. If you find yourself over-indebted you can choose a debt consolidation strategy that can work best for your needs. One of the benefits is that it eliminates the hassle of keeping track of various deadlines. You also don’t have to worry about paying multiple fees and administration costs.
In order to qualify you will need to be struggling to repay the multiple debts you have. By opting for debt consolidation it means that you have identified the factors that may lead to your credit record possibly becoming impaired.
One of the first steps you need to take is to work out which debt consolidation strategy will be best. For instance, you could choose to apply for a debt consolidation loan, you could use a balance transfer credit card or you could use the equity in your home loan.
The right strategy for debt consolidation:
Don’t believe that you are free to spend as much as before
Debt consolidation frees up some cash in your monthly budget, which means that you could become tempted to spend the money if you aren’t disciplined enough. The whole aim of debt consolidation is to get you out of debt, so you’ll need to make sure that you don’t accumulate more credit.
It should be accompanied by a change in your spending habits
You need to make sure that you change the way that you spend money. Debt consolidation makes it simple to keep track of your debt repayments. You need to take control of your spending, so that you don’t end up in a debt cycle. You need to ensure that you become more disciplined.
Spend less than before
A simple way to pay your debt off faster is by simply spending less than before. If you know that you can trim your budget in certain areas, work on doing this and use the extra funds for paying your debts off.
Keep in mind that there are different types of credit, which have their own costs
There is no one-size-fits-all solution to debt consolidation. You need to assess your own unique financial standing so that you can pay your debt off quickly.
By paying over a longer term, this boosts the total interest amount you owe
You’ll want to make sure that you pay the debt off as fast as possible. So keep in mind that even if you pay lower instalments over a longer period of time this ultimately means that you’ll be paying more interest. Aim for a lower interest rate than the average which you currently pay.
The loan should match your long-term financial goals
If getting the loan doesn’t make sense to you financially and if you can find another way to pay the debt off, do that. Keep your financial goals in mind when deciding.