Debt Consolidation Tips to Tackle Your Toughest Money Challenges
October 2, 2019
You’re probably familiar with the quick pace at which debt can accrue. High interest charges mean your balance continues to grow even when you repay far more than your minimum monthly payment requires. What if you could group several of your credit cards and personal loans under one lower interest payment to help you get rid of old debt permanently? That‘s the idea behind debt consolidation.
Debt consolidation loans can help you knock out lingering balances with high interest rates, so you can pay off the total faster and save money while you do it. The process involves taking out a loan to pay-off your current debt, then that “consolidation loan” functions just like an installment loan. Bear in mind that debt consolidation loans only make financial sense when you can secure a better interest rate than you previously paid on those outstanding balances. Otherwise, keep making the maximum payment you can on what’s currently open and has the highest interest rate.
A lower interest rate loan means more of your money goes toward paying off the principal balance rather than simply covering the interest each month. First, decide on the type of loan that makes sense for your current circumstances. Common loan options for consolidating debt include credit card balance transfers, home equity loans, retirement account loans and debt consolidation loans (as we are discussing here). Also, keep in mind that you may need to secure any type of debt consolidation loan with collateral acceptable to your new lender. CONTACT one of our team members to discuss these options and which is best for you. For retirement account loans, contact your Plan Administrator for details.
Next, how much do you need to borrow? Begin by adding up the existing debts you wish to pay off. While you may not need this information immediately, it’s always a good idea to determine your exact financial obligations to avoid asking for a higher amount than you actually need.
Finally, know your credit score. Before you apply for a personal loan, you should know the state of your credit. Major credit bureaus provide one free credit report annually. To request your free report, contact them here:
Equifax
Experian
TransUnion
Pro Tip! Experian offers this helpful list of ways to dispute issues with your credit report. Read the article HERE.
The Best Road Going Forward: Avoid Piling Up More Debt
While debt consolidation can help you pay off high-interest balances, it’s not a magic eraser. Once you get current debt under control, it might be time to consider a few lifestyle changes to make sure you avoid this situation in the future.
Tip #1
Review your credit card and bank statements to see where you overspend. For example, you might find you eat out multiple times per week, or maybe you take shopping sprees when stressed out. Knowing where you slip up can tell you the right adjustments to make.
Tip #2
Create a realistic budget that you can stick to even when times get tough. It’s all about setting spending limits and making it a priority not to carry credit card balances over each month.
Tip #3
Stay in tune with your finances by reviewing all of your statements monthly to hold yourself accountable for increased spending … and celebrate big payoffs! This will keep your financial goals at the top of mind.