Many people struggle to manage credit cards responsibly and end up accumulating debt. On top of that, the COVID-19 pandemic made it harder for young people to establish themselves as independent adults, pushing them towards irresponsible lending practices.
A study found that young Australians were less likely to hold a credit card but were more likely to get into trouble when they had one. These people were also more likely to hold multiple cards.
If you have accumulated a large amount of credit debt and are looking for a way out, you may benefit from our debt consolidation tips.
Consolidating your debt by combining all your payments into a single monthly payment is a good idea if the new debt has a lower Annual Percentage Rate (APR) than your credit cards.
So, what can you do to make debt consolidation work in your favour?
Let’s find out!
Debt Consolidation Tips You Need to Try
Debt consolidation is an excellent way to reduce your interest rates, shorten the payoff period, and make more manageable payments. The discussion ahead will enable you to manage your finances more effectively and start off the rest of your future on the right path
The following tips have been collected and explained using both professional advice and anecdotal evidence in support of their efficacy. Let’s take a look.
1. Spend Responsibly
One of the most important debt consolidation tips is creating a balanced budget and quitting the habit of spending irresponsibly. If you have a spending problem, a significant portion of your cash goes to monthly bills, or you make do without a proper household budget, you can expect to need another loan for debt consolidation.
Make sure you list down monthly expenses and allocate an adequate budget for them so you know where your money is going. You can set the loan amount aside at the start of the month to avoid the struggle of making your ends meet.
2. Understand How Debt Consolidation is Different from Loan Settlement
If you opt for a debt consolidation loan, you move some or all of your existing debt into one loan that you can easily manage. On the other hand, some lenders agree to forgive your loan after you’ve paid less than full payment.
This refers to debt settlement. In this case, your credit report will show “Settled” or “Paid settled”. On the contrary, if you consolidate your debt, the report will show “Paid in full”.
With this in mind, it is easy to see how a single debt settlement can significantly affect your credit score, regardless of where it stands now. Debt consolidation, thereby, should be the preferred option.
3. Analyse, Analyse, Analyse
The biggest perk of debt consolidation is that it merges several loan payments into one, allowing you to manage your finances more conveniently.
However, it should not only reduce the amount of your monthly payments, it should also be able to save you money in interest and fees.
The ideal way to go about this is by choosing debts with higher interest rates for consolidation. For the rest, you can set up auto-payments. This way, you’ll be able to save money without having to worry about missed loan payments.
4. Avoid Using Credit Cards As Much As Possible
You may be tempted to start using your credit cards again after consolidating your debt. However, you must resist it.
While the cost of a single purchase may not seem like a lot, you need to remind yourself how several minor expenses can add up to create an unmanageable balance. Debt consolidation doesn’t change the amount you owe to the lender.
Refrain from using your credit cards unless you don’t have a choice. This will keep you on track, allowing you to manage your finances responsibly and reducing your risk of falling deeper into the pit of debt.
5. Create a Plan to Handle Emergency Expenses
One of the best debt consolidation tips you can get is to build an emergency fund for the rainy days.
You need to have a financial plan in place that accounts for unexpected expenses if you want to avoid high-interest credit card debt after debt consolidation.
No matter where your finances currently stand, you should consider starting a savings account. You can use that money in case any unexpected car expenses or medical emergencies come up.
A good rule of thumb is to start with $800 to $1000 a month. You can then work your way up and save for three, six, and nine months of expenses.
That’s it for debt consolidation tips!
Now, let’s quickly go over a few ways to prevent yourself from falling into debt.
· Don’t delay bill payments.
· Try to keep your balances low to keep additional interest at bay.
· Manage your credit card responsibly to maintain a good history of the credit report.
· Don’t get multiple new credit cards for the sake of increasing your available credit. This will only add to your debt, making it challenging for you to repay.
It can be hard to escape the burden of debt and financial hardships caused by job loss, divorce, medical condition, and other unforeseen life events, no matter how wisely you spend your money.
Debt consolidation can help relieve this burden, and professionals like Lightning Loans can assist you in making the process easier.
If you want to reduce or eliminate your debt and streamline your finances, you should consider combining multiple balances into a single monthly payment. This will save you the hassle and stress of juggling multiple payments every month.
On top of this, you might actually save some money if you qualify for an APR lower than what you’re paying on your credit cards.
Make sure you keep these debt consolidation tips in mind to improve your financial condition over time. Regardless whether you’re just beginning to get a hold of your finances or want to be proactive in your new journey to adulthood, debt consolidation is a tool that makes your goals of financial autonomy easier to achieve.