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Essential Keys to Successful Debt Consolidation

Essential Keys to Successful Debt Consolidation

There are times people are suddenly faced with a financial crisis. In such cases, the primary instinct might be to cut spending and other expenses. 

While such tactics might help, getting all essential debts off might be the best approach. This, however, requires a pretty comprehensive approach. Debt consolidation is a common and effective strategy that many people employ. This approach involves bringing together a series of debts into one loan with the advantage of a lower interest rate. 

Another advantage is that psychologically, it feels manageable, which is also empowering. However, not everyone can get relief from debt consolidation. 

Debt consolidation is best for high-interest debts like credit card debts. As a result, there are categories of people with income and expenses that disqualify them from debt consolidation. Those people should consider other means to take care of their debts like bankruptcy. 

When considering debt consolidation, there are many things one needs to consider to make it successful. This article will shed light on such things:

Your Budget should be realistic.

To have a successful debt consolidation, you need a clear, realistic, and visible attack. 

With a basic budget, you have money for emergency funds, debt payments, and your retirement savings account. Debt consolidation, however, is more than that. One needs to avoid adding further debt by taking care of infrequent expenses like car insurance fees, alongside a period of the year with higher expenses. 

It also does not make sense to spend when you feel and think you have given yourself a break from spending for too long. By a realistic budget, we mean the one that leaves room for things you love and value. 

Stay away from using Credit cards.

One needs to avoid using a credit card to pay off the debt. Some people even go to extreme means to stay away from their credit cards. Some people go as far as destroying their credit cards, freezing them in ice, locking them up in a vault, etc.; while these are extreme methods, they are effective and practical. 

One can consider such effort as a means of commitment to help for the greater good. To help with adherence, one needs to write down why one desires to be free of debt, alongside how often the payment should be. Also, there should be a periodic reminder to consider the progress. 

Bear in mind that this is not a license to close the account as it could harm your credit card. However, with this no-use rule, one should expect a nominal charge on the account every couple of months for the account to be active and the credit intact. 

Compare Various Consolidation products. 

With balance transfer cards, one can shift debts from other cards and charge no interest for a limited period. One can get periods ranging from 15 to 21 months for the best products. After such a period, one might be slammed with an interest rate usually double-digit. 

There will be balance transfer fees and a decent credit score for many cards, alongside a high income for one to qualify. You can improve your chances of qualifications by summing up all your sources of revenue. This might include money from your 401(k) and savings account. The total should reflect in your application, not your salary alone. 

With a debt consolidation loan, the interest rate is usually lower compared to credit card loans. It also comes with the advantage of allowing one to borrow more money, and the rate is a factor of the credit profile and the debt amount. You are better off working with a lender that transfers money directly to your creditors, taking away the temptations to spend the money rather than using it for debt payment. 

Ask for Support for your Goals 

Debt is not the favorite topic of anyone. However, support from groups can go a long way in helping people and holding them accountable. 

A debt support group could be an online forum, a close family member, or a friend who will keep you accountable to reach your goals. There are some online lenders that offer support for clients to achieve their goals.